The energy price hike will hit millions at the coldest time of year

Just a day after the Chancellor’s Autumn statement, Ofgem delivered a gut punch that will strip gains from the winners and leave some of the losers in a desperate state.

The energy regulator’s price cap will increase by 5 per cent from January 1 to March 31 2024 when compared to the previous three month quarter. It said that an average household paying by direct debit for dual fuel (gas and electricity) would see bills rising by £94 from to £1,928.

However, it is worse than it looks because that figure is an average across the course of a year. The new higher charges will hit at the coldest time of year when people’s energy use is at its higest. Ofgem CEO Jonathan Brearly blamed higher wholesale energy costs for the price rise but said he had “made it clear to suppliers that we expect them to identify and offer help to those who are struggling with bills”.

What that help might be isn’t entirely clear. National Energy Action (NEA), the fuel poverty charity, said that with Chancellor having offered little in the way of support in his statement, the rise in bills would inevitably mean “millions will struggle in cold and unsafe homes”.

The price pressures are expected to ease come the Spring. Cornwall Insight, the consultancy whose forecasts of Ofgem’s numbers have proved to be unerringly accurate, predicts that average dual fuel bills will fall to £1,816 over the second quarter of 2024 and then to £1,793 in the third before rising again to £1,833 next winter.

However, even that isn’t quite as good as it looks with an increase in standing charges looming. And the wholesale markets Britain is highly reliant on, could yet swing another nasty surprise, as they have this year. Factors, including disruptions to the Finnish Balticconnector, the Israel-Hamas conflict, and industrial action at gas production facilities in Australia, have collectively driven up energy unit prices this winter. Next time around, who knows what it could be?

“As is often the case in the energy market, new challenges have arisen, and our reliance on foreign energy has once again left the UK vulnerable to price increases caused by events around the globe,” explained Craig Lowrey, principal consultant at Cornwall Insight. “With little in the way of direct energy bill support coming out of the Autumn Statement, consumers are likely to look at lowering energy usage to counteract high bills – particularly given that bills remain well above their historic average.”

NEA’s timeline shows just how dramatically the market has changed for the worse. For example, in October 2021, prior to Russia’s brutal invasion of Ukraine, the typical annual bill was just £1,272.

Bills are still substantially lower than they were during the worst of the energy crisis when, forecasts suggested suggested they could hit £5,000 a year. The short-lived government of Liz Truss was forced to introduce the energy price guarantee, which came into force in October 2022 and subsidised energy and gas suppliers so household energy costs were limited to £2,500. Support schemes already in place at the time reduced that still further.

But they remain high and are likely to stay that way. The war has taken a big supplier (Russia) out of the equation. Western nations have found new sources of supply, but they are inevitably all fishing in a smaller pond and paying more.

Jonathan Marshall, senior economist at the Resolution Foundation, the think tank focussed on improving living standards in low income Britain, said: “If you look at where market prices are now and where they are expected to be until the latter part of the 2020s, there’s no expectation of downward movement. The days of bills being closer to £1,000 than £2,000 are probably long gone.”

He said there was an immediate need to reduce the pressure on low income families, who are at the sharp end of the crisis, with children waking up hungry in freezing homes.

The number of people facing crisis are huge. NEA Chief Executive Adam Scorer said: “Our new polling with YouGov showing that one in four (26 per cent) of UK adults have found it difficult to afford to pay their energy bills in the past three months. That’s equivalent to 11m people.”

The charity, the TUC and the Resolution Foundation all support some form of reduced “social” energy tariff for the poor and vulnerable. Disability charities such as Scope are also strongly in favour. Many disabled people incur extra through the need to power equipment ranging from powered wheelchairs to ventilators. The cost of living crisis for them goes beyond heat or eat. It’s head, eat, or ventilate, the very definition of a catch 22 situation.

Longer term, Britain desperately needs to find a way to reduce its dependence on the international wholesale energy markets so it is less subject to the price shocks those markets are apt to deliver. This is a nationwide problem and an economic drag. High energy prices cause particular problems for high energy use industries; manufacturing and the like. But they hurt just about everyone, from pubs, clubs and shops to schools and hospitals to banks, builders, to everything in between.

National Energy Action has been urging the government to step up efforts to insulate Britain’s draughty, fuel inefficient housing stock, which could dramatically cut usage and thus bills. We also need to invest in domestic renewable energy at far greater pace.

In other words, Prime Minister Rishi Sunak’s regressive culture war on net zero needs to end. It’s costing us all.