Around 15 million families will see their energy bills soar by up to £139 after the regulator hiked the price cap by the biggest increase yet.
The sharp 12% rise, which will impact half the population, is driven by a surge of more than 50% in wholesale fuel costs over the last six months with gas prices hitting a record high as global economies recover from the COVID-19 crisis, according to Ofgem.
From October, default tariff customers paying by direct debit will see an increase of £139 from £1,138 to £1,277, while those on prepayment meters will see a rise of £153 from £1,156 to £1,309.
Campaigners say the increase ‘comes at the worst possible time’
Surging global fuel prices are already driving up inflation for consumers, making fixed rate energy tariffs, which are usually better value but not covered by the price cap, more expensive.
Even ahead of the rise, Ofgem had moved to alert householders still reeling from the impact of the coronavirus pandemic.
Campaigners have also said the increase “comes at the worst possible time” and warned it will push an extra 488,000 households into fuel poverty, with more than four million people already estimated to be behind on their household bills.
The hike will coincide with the ending of the job support furlough scheme and the temporary £20-a-week boost to benefits.
Speaking to Sky News, Ofgem chief executive Jonathan Brearley said: “We know how difficult this is going to be for many customers, but what we can’t do is ask companies to sell their energy for less than they buy it for.
“But there is a great deal of help and support that is available.”
Repeatedly pressed on whether the move would force some families into fuel poverty, he said: “We accept that this will change the circumstances of families, so yes we do accept that this is going to be difficult for many families.
“Families need to make sure they access the support and advice that is available.”
Ofgem reviews and changes the price cap once every six months.
Energy suppliers are required to price below the limit, with most setting prices just a couple of pounds under.
The price cap is supposed to offer a safety net for customers by making sure that suppliers only pass on legitimate costs.
Those on default tariffs save an estimated £75-£100 every year as a result, according to Ofgem.
People worried about paying their bills are advised to contact their supplier about available support or shop around before the increase takes effect.
But Simon Francis of the End Fuel Poverty Coalition said: “This unprecedented hike in energy bills comes at the worst possible time for millions of households across the country.
“Switching advice and the price cap may provide some protection from the worst excesses of the energy market, but this will be no comfort to those now facing the stark choice between heating and eating.”
Some pensioners face ‘a miserable and anxious winter’, warns Age UK
Caroline Abrahams, charity director at Age UK, said: “The level at which energy prices are capped is of enormous importance to older people, because we know they are less likely to switch providers for a better deal – especially if they are not online, which is the case for about half of the 75-plus population.
“For all those who are therefore effectively stuck on their existing tariffs, the best protection they have against unfair and unaffordable fuel bills is a robust energy price cap.
“Unfortunately, the fact that the cap is going up significantly this year will set them up for a miserable and anxious winter.”
James Plunkett of Citizens Advice said: “This price hike could lead to a perfect storm for families this autumn, hitting people at the same time as a Universal Credit cut and the end of furlough.”
Energy UK’s chief executive Emma Pinchbeck said: “We know this price rise will come at a difficult time for many customers who may already be facing financial challenges.
“Any customers worried about bills should contact their supplier so they can see what help might be available.”
Pointing to rising wholesale prices, she added: “Ofgem sets the price cap at a fair level for customers but it also needs to reflect when suppliers face increased costs to allow them to keep operating in a market where most providers are making little or no profit at present.”
The increase comes as energy deals have reached the highest cost for more than two years, according to data from Compare the Market.
The average price for one of the cheapest deals on the market is currently £996, the highest charge seen since February 2019.