UK to support consumers as energy price cap rises 54%

household gas
AFP

The UK government on Thursday stepped in to help the hardest-hit households struggling with the rising cost of living, announcing a £9 billion package to offset soaring energy bills.

It followed an announcement by that energy regulator that the price cap on how much suppliers can charge consumers will jump by 54 percent due to soaring wholesale gas prices.

The annual price cap for consumers not on a fixed deal with their supplier will rise by £693 to £1,971 in England, Wales and Scotland from April, Ofgem said.

Northern Ireland has a separate regulator and has also announced sharp hikes in average household gas bills.

UK inflation rose to a near 30-year high in December and more costly household bills are further stoking fears about a cost-of-living squeeze, with government tax rises looming.

The government, under pressure due to lockdown-breaching parties but also struggling to claw back eye-watering pandemic spending, is being urged to get tackle the issue.

Finance minister Rishi Sunak said electricity customers will get a £200 discount on their bill in October, to be repaid over five years, while lower and middle-income households will see a £150 rebate on local taxes in April.

“For me to stand here and pretend we don’t have to adjust to paying higher prices would be wrong and dishonest,” Sunak told MPs in parliament.

“But what we can do is take the sting out of a significant price shock for millions of families by making sure the increase in prices is smaller initially and spread over a longer period,” added the minister, saying it amounted to £9 billion and would help 28 million households.

Rate rise

Soaring wholesale prices are blamed on a cold European winter in 2020-2021, which put pressure on supplies, increased demand from Asia for liquefied natural gas and a number of broader geopolitical issues, including uncertainty on the Russia-Ukraine border.

The cap is reviewed every six months, and the new regime will come into force from April 1.

Ofgem chief executive Jonathan Brearley said that “we know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.

“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event,” he added.

“Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.”

Adding to potential household overheads, the Bank of England on Thursday raised interest rates from 0.25 percent to 0.5 percent as it attempts to tame rampant inflation.

Richard Walker, managing director of supermarket chain Iceland, told BBC radio that 2022 “is probably set to be the hardest year ever for many UK families”.

“We are talking about energy prices and costs directly affecting consumers but that is also going to have a huge knock-on effect for businesses too.

“In terms of grocery retail, every supermarket will be raising its prices.”

Sunak’s announcement came just hours after energy giant Shell announced net profits in 2021 of $20.1 billion due to oil and gas price rises due to increased demand and uncertainty.

Instead of discounts and rebates on household gas and electricity bills, Britain’s main opposition Labour party has proposed a windfall tax on energy companies.

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