Energy price cap set to jump as consumers brace for soaring bills
The Ofgem energy price cap is expected to leap by 18 per cent after June as households brace for the impact of spiralling oil and gas prices.
Energy consultancy firm Cornwall Insight has forecast the average annual energy bill to be set by the regulator Ofgem at £1,929 in July.
It would represent a £288 rise from the cap set between April and June.
The £1,641 bill coming into effect from Wednesday will be a reduction of £117 from the first three months of the year due to Rachel Reeves’ Budget moves to strip energy subsidy costs from the price cap and onto general taxation.
The rise in energy bills is likely to spark fears among economists that inflation will surge in the middle of the year as a chain reaction of higher prices dampens consumer demand and knocks GDP.
Principal consultant Dr Craig Lowrey said a surge in energy bills was “pretty much unavoidable” as international market changes will now have been “baked in” to forecasts.
“Over a month into the Middle East conflict, energy markets are experiencing the kind of volatility not seen since 2022,” Lowrey said.
“While prices may have calmed a little over the past few days, prior to the conflict our forecasts pointed to a relatively stable price cap through the summer, now we are forecasting rises of 18 per cent.
“With Ofgem’s price cap announcement just weeks away, infrastructure damage and continued disruption to marine traffic through the Strait of Hormuz are limiting the potential for any meaningful wholesale price fall.”
Energy price change sparks tax debate
Ofgem will set the official price cap in May.
Shadow energy secretary Claire Coutinho urged the government to capitalise on North Sea oil supplies as she suggested it could yield £25bn more in tax receipts, which could be used to support households through the crisis.
Analysis in The Times has suggested that the government’s levies on energy companies’ profits was making the government around £20m more a day.
Speaking to LBC, chief secretary to the Treasury James Murray appeared to accept the validity of the research.
He added: “If the VAT receipts from energy increase that can often be because people are spending less money on other goods and items, and that means that overall where people pay VAT shifts from other items over to energy and fuel.
“Because energy and fuel are typically at fove per cent rather than the standard 20 per cent that can actually mean revenue goes down. So, it’s not quite as straightforward as you put out.”
Murray also echoed Downing Street comments urging people to “act as normal” as he said that there should be comfort in “knowing that the government is taking action to bring energy bills down”.
“The Prime Minister and the Chancellor are working through contingency plans so that we are prepared for the future and in the longer run over time, the focus that we’ve got on new nuclear power, new wind power, solar power, all of that is really important to giving us more energy independence in the future,” he said.