UK energy bills forecast to hit £4,266 a year from January

Pressure is mounting on the government to announce a fresh support package for struggling households as energy bills are now forecast to top £4,200 from January.

The consultancy Cornwall Insight said on Tuesday that it expected the energy price cap to reach £4,266 a year for the first three months of next year.

The consultancy forecasts that bills could hit £4,426 in the second quarter of next year before easing. Only a week ago Cornwall Insight predicted the energy price cap was on track to rise to £3,615 a year from January.

The consumer champion Martin Lewis said the latest forecast was “tragic news” and urged the “zombie government” to come up with an immediate action plan to help households.

Cornwall Insight said rising wholesale prices and a revision of the methodology used by the regulator Ofgem to calculate the price cap were behind the increase in its forecasts.

The consultancy’s principal consultant, Dr Craig Lowrey, said: “It is essential that the government use our predictions to spur on a review of the support package being offered to consumers.”

The consultancy now expects the cap to hit £3,582 from October, an increase of £200 on its last forecast. It expects bills to begin easing next summer, to £3,810 in the third quarter and then £3,781 in the final three months of next year.

The cap, which is set quarterly by the energy industry regulator, Ofgem, was at £1,400 a year as recently as October last year.

The former chancellor Rishi Sunak announced a £15bn support package for consumers in May, including £400 for every household. However, rising wholesale prices have since threatened to wipe out the impact of that support and Sunak and his Tory leadership rival, Liz Truss, are under pressure to announce further measures.

Lowrey said: “If the £400 was not enough to make a dent in the impact of our previous forecast, it most certainly is not enough now.

“The government must make introducing more support over the first two quarters of 2023 a number one priority. In the longer term, a social tariff or other support mechanism to target support at the most vulnerable in society are options that we at Cornwall Insight have proposed previously. Right now, the current price cap is not working for consumers, suppliers, or the economy.”

Ofgem last week confirmed plans to update the price cap every three months in an effort to allow suppliers to better manage the risk from volatile wholesale prices and prevent higher prices for consumers as a result of suppliers going bust.

The regulator is attempting to prevent a repeat of events last year, when nearly 30 suppliers collapsed, in part due to a rise in wholesale energy prices.

Lowrey said changes to the cap had led to an increase in its predictions. However, he said the move would protect suppliers struggling with costs and prevent the cost of their collapses being added to consumers’ bills.

Ofgem plans to confirm the level of the next price cap on 26 August, days before the next prime minister will be announced on 5 September. The cap will come into force from 1 October.

Breaking a self-imposed social media silence to respond to the latest forecasts, Martin Lewis wrote on Twitter: “Action and planning is needed now. The zombie govt needs to wake up sooner than 5 Sept. The leadership debate must not ignore this portentous national cataclysm any more.”

Lewis added: “People’s livelihoods, mental wellbeing and in some cases very lives depend on this. This is desperate.”

Simon Francis, coordinator of the End Fuel Poverty Coalition, said: “A tsunami of fuel poverty will hit the country this winter and these latest estimates further demonstrate that the level of support already promised by the government is just a drop in the ocean.

“It’s welcome that Rishi Sunak has finally acknowledged this and has pledged more support for the most vulnerable if he becomes prime minister. Liz Truss must now wake up and realise that her plans for tax cuts will not keep people warm this winter.”

Jane Tully, a director at the Money Advice Trust, said: “Government support announced so far to help with energy and cost of living price rises has been welcome but does not get close to matching the scale of the challenge households now face.”

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