Ofgem chief executive Jonathan Brearley told MPs the regulator is expecting an energy price cap in October “in the region of £2,800”.
24 May 2022
The energy price cap is expected to increase by a further £830 to £2,800 in October, the head of Ofgem said as a charity warned the hike will plunge households into a “deep, deep crisis”.
Ofgem chief executive Jonathan Brearley told MPs the regulator is expecting an energy price cap in October “in the region of £2,800” as the market copes with “once-in-a-generation” price changes “not seen since the oil crisis of the 1970s”.
Energy prices pushed the consumer prices index (CPI) to 9% in April, and Mr Brearley’s remarks immediately led to calls for the Government to do more to help households cope with the deepening cost-of-living crisis.
Adam Scorer, chief executive of National Energy Action, said: “Ofgem’s warning that the price cap will rise again by over £800 in October will strike terror into the hearts of millions of people already unable to heat and power their homes.
“It will plunge households into deep, deep crisis. The financial, social and health impacts are unthinkable.
“The UK Government simply must act and use the welfare system and schemes such as Warm Homes Discount to get significant financial support to people before winter. The ambition should be to find ways of covering the entire price increase for people on the lowest incomes.”
The Resolution Foundation said almost 10 million households could find themselves in “fuel stress” this winter if Ofgem’s prediction comes true.
The economic think tank’s analysis suggests the number of families living in fuel stress – defined as spending at least a tenth of their total budgets on energy bills alone – will rise from five million to 9.6 million.
Jonny Marshall, senior economist at the Resolution Foundation, said: “The sheer scale and depth of Britain’s cost-of-living crisis means the Government must urgently provide significant additional support.
“The fact that the crisis is so heavily concentrated on low- and middle-income households means it’s clear how the Government should target policy support.”
Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said: “This news will be utterly devastating for the 6.1 million homes currently in fuel poverty and for the additional 1.7 million households who will now spend this winter struggling to keep themselves warm.
“Fuel poverty becomes a public health emergency in winter and the hidden cost of the UK Government’s continued inaction will be felt in a collapse in the mental health of those in fuel poverty, increased pressure on the NHS from those with health conditions affected by damp properties and excess winter deaths caused by cold homes.
“Unless the Government acts now, it will have blood on its hands this winter.”
Mr Brearley told the Business, Energy and Industrial Strategy Committee: “I am afraid to say conditions have worsened in the global gas market since Russia’s invasion of Ukraine. Gas prices are higher and highly volatile. At times, they have now reached over 10 times their normal level.
“I know this is a very distressing time for customers but I do need to be clear with this committee, with customers and with the Government about the likely price implications for October.
“Therefore, later today I will be writing to the Chancellor to give him our latest estimates of the price cap uplift.
“This is uncertain; we are only part way through the price cap window, but we are expecting a price cap in October in the region of £2,800.”
Ofgem’s prediction is a further 42% hike on April’s price cap increase of 54%, or an increase of £693 a year to £1,971 for those on default tariffs paying by direct debit for the average household.
Mr Brearley said future scenarios could include energy prices going even higher if Russia further disrupts gas supplies.
He said: “The price changes we have seen in the gas market are genuinely a once-in-a-generation event not seen since the oil crisis of the 1970s.
“In any conceivable circumstances, there would have been supplier failure.
“However, it is clear to me and it is clear to the current Ofgem board that, looking over all of our institution’s history, had financial controls been in place sooner we’d have likely seen fewer suppliers exit the market, and for that on behalf of Ofgem and its board I would like to apologise.”
Mr Brearley’s comments followed former Ofgem chief executive Dermot Nolan telling the committee that the regulator could have stopped some of the sector’s failures “if we had moved faster”.