Energy price cap set to rise in January

Household energy prices are set to rise in January, with confirmation due within hours when regulator Ofgem will announce a new price cap.

Analysts suggest the typical household bill is likely to rise by 5% from its current level, to about £1,931 a year, although it could fall again in March.

The first three months of the year are critical for bills, as we use more energy during the darker, colder days.

Ofgem will make the announcement at 07:00 GMT.

The regulator’s price cap affects 29 million households in England, Wales and Scotland. Rules are different in Northern Ireland. Ofgem sets the maximum amount that suppliers can charge for each unit of gas and electricity but not the total bill. If you use more, you will pay more.

Specifically, the price of gas is currently 6.89p per kilowatt hour (kWh), and electricity is 27.35p per kWh.

A typical household energy bill fell by £240 a year in October to £1,834 a year but, of that, £89 was not an actual drop in the price you pay, but actually the result of a new estimate of the typical amount of gas and electricity used by households. Had the calculation not been amended, the fall would have been £151 a year.

Typical annual household consumption is now estimated to be 2,700 kWh a year for electricity, and 11,500 kWh a year for gas.

Last winter, bill rises would have been higher had it not been for the government’s Energy Price Guarantee limiting the typical bill to £2,500. Each household also received £400 of support over six months, but this year the government has not announced any equivalent scheme.

That withdrawal of support and a rise in prices mean bills during the winter alone could be higher than they were last winter for millions of households.

For customers like Roy Bridgewood, that could add extra pressure on to the financial difficulties he is already struggling to cope with.

Mr Bridgewood, from Manchester, is about £1,400 in debt on his gas and electricity bills.

“The last payment I made on the gas was about £800. It was every penny I had left in my savings,” he said.

He has been out of work for a year and has two teenage children at home.

“I’m struggling to get work, struggling to pay bills and struggling to live. You feel vulnerable,” he said.

Experts say he is sensibly trying to pay what he can, and is being open with his supplier.

Emily Seymour, from the consumer group Which?, said suppliers were obliged to help and offer payment plans.

“As we head into colder weather, many households will understandably be worried to hear that energy prices will likely increase from January,” she said.

“We’d recommend that everyone without a smart meter takes a meter reading on or close to 31 December to make sure they don’t overpay for any energy used before the new price cap takes effect. Submitting meter readings on a regular basis is a good idea, and makes sure you are billed correctly.”

The vast majority of people pay by direct debit, with payments smoothed out over the year.

Households on prepayment meters will be most affected by prices during the winter, as customers tend to pay to top up just before they use the gas and electricity.

Those who pay every three months by cash and cheque pay more than those who use other methods of payment.

Part of Ofgem’s announcement includes a cap on standing charges – a fixed daily charge covering the costs of connecting to a supply.

Charges vary depending on where customers live, but the amount of energy that they use is irrelevant for this part of a household bill.

In most areas, the charge has doubled over the last two years. A typical household pays 53p a day for electricity and 30p a day for gas.