In the bleak mid-winter, energy prices will rise – but ‘shopping around’ won’t help

As if the announcement of yet another energy price hike wasn’t bad enough, Ofgem has added insult to injury by telling the British public to simply “shop around” for better tariffs. Helpful.

Many families across the UK are already buckling under the weight of hefty bills. They can barely make ends meet, and when they aren’t worrying about keeping their homes warm and feeding their families, they are working hard to sustain their source of income. It’s exhausting. So when, pray tell, are they going to find the time to hunt down a cheaper deal?

The energy watchdog clearly knew that it was going to take some heat by releasing the information in the midst of a cold snap, when energy bills are at the front of people’s minds. Temperatures have dropped to -6C in some areas, with swathes of the country blanketed in snow. Storm Bert is also set to bring with it 70mph winds and heavy rain.

I say it knew because throughout its statement, there’s a sense of damage control. The cap – which sets a maximum rate per unit of energy and standing charges – will rise by 1.2 per cent or £21 for the “typical” household. To minimise the scare factor, Ofgem also stated that the increase amounts to “around £1.75 a month”, because, well, that’s far more digestible.

It continues: “For an average household paying by direct debit for dual fuel this equates to £1,738 per year. This is 10 per cent (£190) cheaper compared to January-March 2024 (£1,928) and 57.2 per cent (£2,321)less than the energy crisis (January-March 2023).”

Phew. Well that’s alright then. Nothing to see here. Move along!

But wait, don’t. Because there are problems these glibly stated figures gloss over – and they go beyond the already unpleasant fact that this is the second successive price rise when it wasn’t so long ago that people held out realistic hopes of a cut.

First off, those figures are deeply disingenuous. Bills are still appallingly high by historical standards. National Energy Action, the fuel poverty charity, points out that the “typical” energy bill was only £1,277 as recently as October 2021.

Secondly, any increase in our already elevated bills is going to make life difficult for people on low incomes. That £1.75 might not look like much, but it is if you’re already struggling to pay for the weekly shop. Remember that the latter is also increasing in price and is poised to take a further hike thanks to the government’s decision to increase employer national insurance contributions (NICs). We know this because the big supermarkets told us as much in an open letter.

Real suffering is also masked by the fact that the figures are based on a “typical” household using “typical” amounts of energy. Remember that what you ultimately pay depends on how much you use. In reality there is no such thing as a “typical household”.

Some of the 6 million people estimated to be in fuel poverty – defined by the charity as those who spend 10 per cent of their income on fuel bills – use a lot more energy than the “typical user”. Often for very good reasons.

They may, for example, live in a multi-generational household. The more people living in your home, the more energy you have to use. They may have powered wheelchairs and/or a stair lifts, both of which eat electricity. Cold weather causes particular problems for people with mobility impairments like me, because we don’t move around so much. They may be on dialysis (the charity is trying to get batteries out to provide a backup for if/when power cuts out).

There is means tested support available, but that may not be adequate when bills are rising across the board. As for that “shop around” advice? It sounds good, but if you’ve tried it out you’ll realise it’s not as easy as Ofgem would have you believe.

Attempting to work out whether the fixed price deals on offer are worth signing up for basically requires one to become an energy analyst by predicting the future. A tip for you: if you are planning to dip your toes in these waters, the real energy analysts at Cornwall Insights have an unrivalled record of forecasting the cap to within a few pounds.

However, they point out that the UK’s over reliance on volatile wholesale gas prices means that bills are “still susceptible to international shocks”. So the numbers have to be viewed with caution.

All this explains why the government is coming under pressure to help those in fuel poverty, whose numbers have grown by 1.5 million in just three years.

I fear the Treasury will resist this. It is already borrowing heavily and the measures in the Chancellor’s tax raising Budget aimed at addressing Britain’s fiscal crisis are yet to take effect.

The rise in bills will deliver a modest windfall to Rachel Reeves because VAT on domestic energy bills is charged at 5 per cent. One thing she could do would be to temporarily suspend that levy for those in greatest need before reintroducing it in April, when Cornwall predicts that bills will (finally) start to fall and people use less energy anyway. But I fear that she will resist this.

It is shaping up to be a very cold winter, indeed.