An afternoon spot of tea might soon come with an afternoon spot of energy, as struggling Britons seek to ration power during the largest utility hike in memory.
Energy bills in the UK are set to jump to the highest level in over a decade, after regulator Ofgem announced Thursday it is raising the upper limit utilities can charge for electricity and gas. Beginning in April, 22 million households can expect their annual energy bills to rise 54%, or £693 ($940), to an average of £1,971 ($2,670).
Between a Watt and a Hard Place
Ofgem is trying to strike a delicate balance in a case with few clear winners. In the last year, the price cap it imposes on energy suppliers has devastated the utility sector while wholesale gas prices skyrocketed. At least 25 UK suppliers went out of business in 2021 and the cost of taking on the price-capped customers of bankrupt rivals has squeezed the companies still standing, leading to fears of a self-perpetuating cycle of bankruptcies.
On the other hand, Britain is dealing with a cost of living crisis. In December, the inflation rate was 5.4%, the highest in three decades, and many households are struggling to make ends meet. But to alleviate the utility crisis, Ofgem acknowledged it may exacerbate the affordability crisis:
- When the price cap is raised in April, Ofgem estimates as many as 1 in 10 people in the UK will fall into “energy poverty” — which means spending over 10% of income on heat and electricity. 2.2 million people already fit the definition, and that will triple to 6.6 million.
- About 4.5 million vulnerable households who prepay for electricity and gas will see their bills rise even more than the average, from £708 to £2,017 a year.
Too Little, Too Late: On Thursday, the government announced a £9 billion package to reduce energy bills by £200 that will be paid out in October. But analysts predict another big increase to the energy cap by then, taking household costs above £2,400 a year. To make matters worse, a £12 billion hike in national insurance contributions and a freeze on income tax thresholds will cost households £600 a year beginning in April, according to the Resolution Foundation.