Energy price cap rises 4% with January bills forecast near £2,000

Household energy bills in England, Scotland and Wales rose again today after Ofgem's price cap increased by 4%, adding about £60 a year to a typical dual fuel bill. The cap now leaves the average household paying around £1,725 a year, up from £1,663. The increase affects millions of customers on variable tariffs, with estimates of the number affected ranging from more than 4 million to around 20 million depending on how the market is measured.

The rise comes as forecasters warn of a much bigger increase in January. Cornwall Insight expects the price cap to jump by 16%, adding about £276 to a typical annual bill and taking it close to £2,000. Some later analysis suggests a further £350 rise, which would take a typical bill to about £2,100. Suppliers and analysts say it would be the biggest quarterly increase in four years, taking bills back towards the levels seen during the energy crisis that followed Russia's full-scale invasion of Ukraine in 2022.

The government has temporarily removed VAT from electricity bills from today, saving the average household around £45 a year. Ministers say the cut will soften the blow, but it does not cancel out the cap increase for many households. The Prime Minister, Andy Burnham, said the country is facing a serious situation and that he is looking at every possible measure. He rejected the idea that warnings of a second energy crisis are overstatement, saying global instability, especially in the Middle East, is driving up fuel and energy costs. He said reopening the Strait of Hormuz is an urgent international priority.

Energy suppliers and charities are pressing for more support in the Budget, which is less than a month away. The EDF chief executive, Simone Rossi, told the BBC the UK is walking into a second significant energy crisis. He called for the VAT cut to be extended beyond April and for targeted help such as a social tariff for the most vulnerable. Energy UK, the suppliers' trade body, wants targeted support above the £150 Warm Home Discount, a shift of some levies from electricity bills to general taxation, and a debt relief scheme.

The financial pressure on households is already severe. Bill payers owe energy suppliers billions of pounds, with figures ranging from £5 billion to £6 billion in arrears and warnings that the total could reach £7 billion by the end of the year. Fuel poverty charities say around 7 million households, or 7.6 million people, are in fuel poverty. The cost of unpaid debt is also spread across all customers, adding around £67 to a typical bill, according to one analysis.

Diesel prices have added to the strain. The average price is just under £2 a litre, close to a record, because of tight refining capacity and disruption linked to the Middle East conflict. Rising diesel costs feed into transport, food and other household costs. The Bank of England and mortgage markets are also under pressure, with average fixed-rate mortgage deals up and repayments higher.

Consumers are being advised to review whether a fixed deal makes sense, check exit fees, submit meter readings and query estimated bills. A switching surge has followed the warnings, and one comparison suggests the best fixed deal could save £355 against the January forecast. Energy companies say they are offering support through trust funds, appliances, electric blankets and debt write-offs, but charities argue that is not enough.

The political row is intensifying. Labour promised before the last election to cut household energy bills by up to £300, but bills have risen instead. Critics, including independent energy consultant Kathryn Porter, argue that net zero and grid costs are now a bigger driver of bills than wholesale gas, and that North Sea gas fields such as Jackdaw and Rosebank should be approved. Others say new domestic oil and gas would be sold on international markets and would not quickly lower consumer bills, and that insulation, renewables and targeted support are better answers.

The government says it cannot protect everyone from global shocks, but it is not powerless. Options include extending the Warm Home Discount, introducing a social tariff, debt relief, reforming standing charges, or shifting levies. The Chancellor is expected to set out decisions in the Budget. For now, households face a 4% rise today and the prospect of a much sharper increase in January, during the coldest part of the year.