UK energy bills to rise by 80% in October as regulator announces hike

Campaign groups, think tanks and politicians are calling on the government to tackle a cost-of-living crisis after Britain's energy regulator raised its cap on consumer energy bills.

The price cap limits the amount energy suppliers can charge domestic customers for their combined electricity and gas bill in England, Scotland and Wales, but is calculated by Ofgem throughout the year to reflect wholesale market prices.

Around 24 million households are covered. Prepayment plans for 4.5 million households will see an increase in price.

Suppliers in Northern Ireland can increase prices at any time after getting approval from a different regulatory body.

Over the last year, gas prices have gone up as global demand has gone up due to low gas storage levels and a drop in Russian imports. Electricity prices have gone up as a result of this.

The cap will be calculated every three months rather than every six months as of this month.

The cap is expected to go up to $5,341.08 in the second quarter and then go down to $4,776.97 in the third quarter, according to Cornwall Insight.

The annual bill is still higher than it was in October 2021.

In July, the government announced it would give a grant of £400 to all households over the course of six months to help with bills, with an additional grant of £650 going to 8 million vulnerable households. Support packages have been announced by some suppliers.

The scale of the problem has been compared with the Covid-19 Pandemic and the 2008 financial crash in terms of its impact on the population.

A catastrophe is coming this winter as soaring energy bills risk causing serious physical and financial damage to families across Britain, according to a senior economist at the Resolution Foundation.

We are on course for thousands to see their energy cut off, while millions will not be able to pay their bills.

The U.K. leadership election has meant no new policy announcements have been made despite the looming spike in bills.

No decision will be made until the new prime minister is elected in September, according to the two candidates.

Sunak said at the hustings that he would provide more financial support for vulnerable groups.

The current favorite to win the contest repeated previous comments about wanting to use tax cuts to reduce pressure on households and reverse the recent increase in national insurance tax.

The options on the table include freezing the price cap at its current lower level, which energy suppliers argue would need to be financed through a government-overseen funding package, or allowing the price cap to rise and extend household support.

In order to avoid millions of households falling into financial distress, the government needs to extend household payments from £400 to £1,000, with an additional one-off minimum payment of £150 for the lowest income households.

The Labour Party wants to freeze the April to October cap through winter by extending the windfall tax on oil and gas companies, scrapping the universal payouts and finding other savings.

Jonathan Brearley, chief executive of Ofgem, said any response needed to match the scale of the crisis we have before us and involve the regulators, government, industry, NGOs and consumers.

Brearley said that the price cap increase will have a huge impact on households across Britain.

The new Prime Minister will need to act to tackle the impact of the price rises that are coming in October and next year, even though the Government support package is delivering help right now.

A set of options for the incoming Prime Minister that will require urgent action is being worked on.

The new prime minister will need to think unthinkable in order to get enough support to where it's needed most.

An innovative social tariff could provide broader targeted support but involves huge delivery challenges, while freezing the price cap gives too much away to the less fortunate. This problem could be solved with a solidary tax on high earner, which is unthinkable in the context of the leadership debates, but a practical solution to the reality facing families this winter.

CNBC reached out to the government.

The Energy UK trade association will continue to call for government intervention to help both consumers and the economy, according to Emma Pinchbeck.

It is one of the reasons that we have lost 29 suppliers from the market. We are talking about something much larger than the industry can meet, despite the help that has been put in place, despite charging the maximum they can for the cost of buying gas.

According to Pinchbeck, the industry favored a deficit tariffs scheme that would allow suppliers to keep prices at their current level and have their costs met by a loan.

European governments are coming up with their own support packages for citizens as they face the same soaring wholesale prices along with varying degrees of reliance on Russian gas.

France has capped increases in electricity tariffs at 4% and fully nationalized its energy supplier.

German households will have to pay more on their gas and electricity bills in the coming years to help cover the costs of replacing Russian supplies. The government is discussing a sales tax exemption on the levy and a relief package for poorer households, but has been criticized for not announcing enough support.

Italy and Spain have both used windfall taxes to fund a combination of handouts for families in need.