Analysts warn Britain’s energy price cap could triple next spring due to severe gas shortages from Russia.
Ofgem’s fuel and electricity limit is currently set at £1,971 per year for the average household, but has already risen by more than 80% to £3,549 in October.
Based on current trends, Auxilione consultants say the shares are likely to double to £7,263 when shares are reviewed in April.
This limit is based on highly volatile wholesale market prices, which means that predictions made months in advance are subject to large errors.
However, many businesses are projecting price increases in April of more than £5,800 – a staggering blow to millions of businesses already struggling to stretch their budgets.
The government has promised £1,200 in “extra assistance” for low-income households, who make up about a quarter of all households.
All taxpayers get £400 off utility bills in the worst winter months.
But experts say it will have little impact on most families, with MoneySavingExperts’ Martin Lewis warning that “people will die” if more help isn’t available.
The government has virtually admitted that it wants to announce more speeches, but is unable to do so due to a Tory leadership dispute between Rishi Sunak and Liz Truss.
Officials are working to ensure additional support and cost-of-living commitments are made as quickly as possible when the new prime minister takes office, a spokesman said on Friday.
Both candidates are expected to ignore or reject calls to freeze energy price caps in favor of policies that put more money in people’s pockets.
Energy price caps: how they work and why they don’t freeze
Set by the independent regulator Ofgem, this limit is designed to limit the profits a provider can make from households.
Since the prices offered by providers in the wholesale market can fluctuate, this means that the maximum amount that a provider can charge a household can also fluctuate.
Although the cap is not fixed, it still protects consumers from the market to some extent. Wholesale prices are now 10 times higher than before the crisis and tax increases have been significantly reduced.
Ofgem’s ability to substitute capital is aimed at tying up suppliers, forcing the government to choose between massive taxpayer-funded bailouts or the disruption of the country’s energy supply.
But experts disagree on where to strike a balance between the health of providers and the price consumers pay.
Some argue that the cap exacerbated inflation. This is to prevent suppliers from paying more bills when energy prices for raw materials are low, creating a “buffer” that can be used to stabilize bills when prices rise.
The problem was widely blamed on the collapse of Valve, where the government-backed regime has 1.6 million customers.
The policy also caps utility bills for everyone, regardless of income.
Others say Ofgem puts too much emphasis on market stability. By limiting the ability of companies to compete with each other to offer deals, Martin Lewis accuses them of “selling to downstream consumers.”
Regulators came under renewed criticism in August after board member Christine Furnish accused employers of “giving too much to companies at the expense of consumers.”
It is believed that he opposed the changes in the calculation of the maximum price. This allows companies to charge their customers more when they secure future energy supply in advance.
Economists generally agree that the recent surge in energy prices can be attributed to a post-coronavirus demand boom, fueled by declining gas supplies following the Russian invasion of Ukraine.
Current projections show that energy prices and headline inflation will begin to decline in the second half of 2023 and return to normal levels within two years.
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Source: Metro
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