Households told to cough up as Ofgem raises energy price cap by over £100

Households could be left more than £100 out of pocket each year as Ofgem hikes up the price it lets suppliers charge for energy.

The regulator said this morning it will increase the government's energy price cap, which was meant to save customers from rip off deals, by £117.

Read more: Ofgem price cap: What to do if your energy bills shoot up

The hike has been criticised by consumer advocates as it more than wipes out the £75 annual savings which households were promised as the price cap came into force in January.

Dermot Nolan, chief executive of Ofgem, said: "We can assure customers that they remain protected from being overcharged for their energy and that these increases are only due to actual rises in energy costs, rather than excess charges from supplier profiteering."

The widely expected rise means a household on a standard variable tariff using the average amount of energy will have its bills capped at £1,254 per year.

Experts were outraged at the rise, which outstripped most estimates of around £80 to £100, saying it betrayed the promise of the price cap. 

"People could be forgiven for feeling that they’ve been completely and utterly conned by the Government’s energy price cap," said Richard Neudeg, head of regulation at Uswitch.

"We are in a ridiculous situation where standard plans are likely to be in higher in April than before the cap was introduced."

Consumer group Which called the increase "eye-watering," while Money Super Market said it "deals an even more significant blow to millions of households."

However, the rise was welcomed by parts of the industry. Several companies had said that the cap, which is meant to limit profits to 1.9 per cent, was too low.

"Nobody takes the decision to increase prices lightly, but Ofgem’s announcement today underlines the fact that suppliers, of all sizes, are facing drastically rising costs – including a 17% increase in wholesale costs since the last cap period – the vast majority of which are outside their direct control," Lawrence Slade, the chief executive of industry body Energy UK said.

Suppliers are free to charge less than the new  cap, which comes into effect in April. But the big six, which still accounts for nearly 80 per cent of households, is expected to price near the limit. Most plans with the big six are currently within a couple of pounds of the old limit.

"Unfortunately price rises were inevitable as the cost of supplying electricity and gas to our homes has been increasing. As unwelcome as this news is, it’s likely that prices would be higher still without the cap and there are steps people can take to ease the strain on their bills," Citizens Advice chief executive Gillian Guy said.

A string of small suppliers have gone out of business in recent weeks, with many blaming the price cap for their financial woes.

Last month, Scottish government backed Our Power stopped trading, saying it had simply run out of cash.

It came hot on the heels of Economy Energy, which had received a litany of complaints over poor customer service, and nine other suppliers which all shut their doors in the last 13 months.

Prime Minister Theresa May promised the price cap would help the most vulnerable customers from being charged unfair prices when they were put onto the standard tariffs.

Read more: Two thirds of Brits will switch if energy price cap rise hits bill

"The energy market punishes loyalty with higher prices, and the most loyal customers are often those with lower incomes, the elderly, people with lower qualifications and people who rent their homes," she told the Conservative Party  conference in 2017. 

Ofgem has committed to reviewing the energy price cap every six months from now on. Critics say this could cause more price rises than ever, and this time they will be sanctioned by the government.