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Aug 23 2024

Energy price cap to rise in October amid backlash over loss of some winter fuel payments | Business News

The energy price cap will rise to an average annual £1,717 from October, the industry regulator has confirmed as the clock ticks down to the loss of winter fuel payments for millions of pensioners.

The new figure represents a 10% a year – or £12 per month – leap in the typical sum households face paying for gas and electricity when using direct debit.

Ofgem said that the rise was largely due to higher wholesale gas prices and it urged bill-payers to “shop around” as there are fixed rate deals on the market that could offer savings.

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Its decision means the cap, which is adjusted every three months and limits what suppliers can charge per unit of energy, will remain around £500 up on the average annual bill levels seen before Russia’s invasion of Ukraine.

It is, however, set to be £117 lower than the October 2023 level.

That gap may partly explain why chancellor Rachel Reeves likely opted to end winter fuel payments – worth up to £300 annually – for around 10 million pensioners not in receipt of means-tested benefits including pension credit.

She blamed the measure, revealed last month, on the need to help plug a “black hole” in the public finances left by the Conservatives but has faced a widespread backlash including from within Labour’s own ranks.

Charities warn that heating costs remain punitive and a key plank of the continuing cost of living crisis that will force many to choose between heating and eating this winter.

Research by Citizens Advice suggests one in four could be forced to turn off their heating and hot water amid record levels of energy debt.

Energy Secretary Ed Miliband admitted the rise in the cap was “deeply worrying” but defended the cuts.

“The truth is that the mess that was left to us in the public finances is what necessitated that decision around winter fuel payment and us focusing it on those who need it the very most.

“That’s why this government is also driving throughout the coming months to get the people, the 880,000 pensioners who are entitled to pension credit and not getting it to try and get them to take it up, to make them aware of this so they can get the winter fuel payment as well.”

An updated forecast issued by the energy research consultancy Cornwall Insight predicted a further 3% hike in the cap during the peak use months of January-March to £1,762.

SHOULD I TAKE A FIXED DEAL?

Cast your mind back to before the COVID pandemic and you will remember that a reluctance among households to switch suppliers helped give birth to the energy price cap.

The majority of homes were on so-called default tariffs – sometimes through no choice of their own – but those able to choose and the more financially savvy had a fixed rate deal, often changing their supplier once a year to bring down their bills.

But they largely disappeared from view after dozens of suppliers collapsed amid a series of cost shocks, latterly caused by the invasion of Ukraine by Russia, forcing the bulk of households to hunker down and rely on the price cap.

It certainly is not perfect and is ripe for reform, as Ofgem has suggested again today.

A feature of the energy market this year has been the return of fixed rate deals.

They are fewer in number but can offer certainty on what you will pay over the term of the deal.

Ofgem figures show that around one million more households have taken that opportunity since April, bringing the total to five million.

Are they worth it? Is it too late?

The price comparison site Uswitch claimed today that savings of about £125 on the October price cap level are out there.

Emily Seymour, the energy editor at consumer group Which?, cautioned: “As a rule of thumb, we’d recommend looking for deals around the price of the current price cap, not longer than 12 months and without significant exit fees.”

Ofgem chief executive Jonathan Brearley said: “We know that this rise in the price cap is going to be extremely difficult for many households. Anyone who is struggling to pay their bill should make sure they have access to all the benefits they are entitled to, particularly pension credit, and contact their energy company for further help and support.

“I’d also encourage people to shop around and consider fixing if there is a tariff that’s right for you – there are options available that could save you money, while also offering the security of a rate that won’t change for a fixed period.

“We are working with government, suppliers, charities and consumer groups to do everything we can to support customers, including longer term standing charge reform, and steps to tackle debt and affordability.

“Options such as changing how standing charges are paid and getting suppliers to offer more tariff choices and give customers more control are all on the table, but there are no silver bullets.

“Any change could leave some low-income households worse off, so it’s important we hear views on our proposals and continue working with the government to see what targeted support could help customers.

“Ultimately the price rise we are announcing today is driven by our reliance on a volatile global gas market that is too easily influenced by unforeseen international events and the actions of aggressive states. Building a homegrown renewable energy system is the key to lowering bills and creating a sustainable and secure market that works for customers.”

The government’s energy strategy includes measures to eradicate the country’s dependence on natural gas for heating and electricity through a greater commitment to wind power, including onshore.

The hope is for lower bills in the future.

Jess Ralston, head of energy at the Energy and Climate Intelligence Unit said: “A lack of progress on energy efficiency and heat pumps means that our reliance on gas hasn’t fallen much in recent years, despite the volatility in the international markets forcing bills to skyrocket.

“The new government has made steps on renewables, but not confirmed its plans for home heating or insulation yet, and there is clearly no time to waste.

“Unless we start to reduce our demand for gas, we will only see our dependence on foreign imports rise. Oil and gas from the North Sea is sold on international markets to the highest bidder so doesn’t help with our bills or energy independence.

“With the removal of the winter fuel payment for some pensioners at the same time as bills going up, it’s likely that some will struggle and it remains to be seen if the government will bring in measures to support those worst hit by the removal of winter fuel payment.”

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May 24 2024

Energy price cap: Average bills to fall by more than £100 – but predictions say they will rise again | Business News

The average annual energy bill will be £506 cheaper than a year ago from July, the sector’s regulator has announced.

The energy price cap – which limits what can be charged per unit of energy – is due to fall from the month after next.

It means the average annual bill will be £1,568 a year, 7% less than at present.

But while the July figure is a reduction, bills are still more expensive than before.

Before the energy price shock, caused primarily by Russia’s invasion of Ukraine in February 2022, a standard 12-monthly bill was £1,084.

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So compared with three years ago, energy is costing homes an extra £484.

During the current period from 1 April to 30 June, the energy price cap is set at £1,690 per year for a typical bill.

Energy regulator Ofgem sets the cap four times a year, with the latest announcement applying from July to September.

The overall rate of inflation came down in April – in large part thanks to the current higher cap which came into effect that month and brought prices down for energy users, according to the Office for National Statistics.

However, many households are in debt to energy providers.

“The fall in the energy price cap reduces bills slightly, but our data tells us millions have fallen into the red or are unable to cover their essential costs every month,” said Dame Clare Moriarty, the chief executive of Citizens Advice.

“People cannot rely on lower energy prices alone to escape the financial issues they’ve been experiencing. That’s why we need better targeted energy bill support for those really struggling to keep the lights on or cook a hot meal.”

More expense to come

Latest forecasts suggest bills will increase again coming into winter as wholesale gas costs are on the rise.

Respected research firm Cornwall Insight said it expects the fall announced today “may be temporary”.

It predicts a typical bill will increase to £1,762 from October and remain around this level until the end of March.

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Gas prices reached four-month highs earlier this week on concerns that Russia could halt gas flows to Austrian multinational oil, gas and petrochemical company OMV and that US exports to Europe may be damaged by a contractor at a Texas terminal filing for bankruptcy protection.

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Oct 24 2023

Cap on bankers’ bonuses to be abolished next week | Business News

The cap on bankers’ bonuses is to be abolished, the financial services regulatory body has announced.

From 31 October, EU rules that limit bonus payments to twice a banker’s salary will be removed, the Prudential Regulatory Authority (PRA) said.

The policy change was initially announced by former chancellor Kwasi Kwarteng in the infamous September mini-budget of the Liz Truss premiership.

It was one of the few announcements to be retained when Chancellor Jeremy Hunt took charge of the Treasury.

City executives had complained that the cap was a barrier to recruiting and retaining quality workers, and London was losing out on talented staff as a result.

The head of the London Stock Exchange had in May called for company bosses to be paid more.

“The alternative is we continue standing idly by as our biggest exports become skills, talent, tax revenue and the companies that generate it,” Julia Hoggett said.

From next week there will be no legislative barriers on bonus payments for employees of banks, building societies and major investment firms that are regulated by the PRA.

The move is being made to deal with what the PRA and Financial Conduct Authority (FCA) said are “unintended consequences” of the cap, namely that salaries have been increased.

Having high fixed yearly payments, rather than variable bonus sums, makes it harder for firms to adjust to times when financial performance is poor or to react to potential misconduct by a senior executive, a statement by the bodies said.

The announcement follows a period of consultation conducted by the PRA and will apply to the current and future financial years.

The law had been enacted in 2014 in the wake of the 2008 global financial crash. It was associated with incentivising bankers to take outsized risks which the EU sought to discourage.

A spokesperson for the Treasury said, “Decisions on remuneration in the banking sector are for the PRA as the independent statutory regulator.”

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Aug 8 2023

Energy price cap ‘costing people money and boosting inflation’ | UK News

Ofgem’s energy price cap is preventing customers from accessing lower tariffs, contributing to inflation and should be abolished, a new report has claimed.

The cap has gone “far beyond” its original purpose of providing protection for customers to become a “de facto regulated market price”, centre-right think tank the Centre for Policy Studies (CPS) said.

“For almost two years almost all tariffs have been priced at or just below the capped level, with no evidence this will change in the near future – meaning the government is effectively setting the market price for energy and eliminating any chance of customers switching to a better deal,” CPS energy and environment researcher Dillon Smith said.

The report urges the government to move “from a wartime to a peacetime regulatory regime” by abolishing the cap and returning to a retail market “with competition at its heart”.

It also calls for stronger protections against fuel poverty, such as a social tariff for households spending an excessive proportion of their income on energy bills, tackling the so-called loyalty penalty for those on default tariffs and building a resilient energy market for the long term.

Craig Lowrey, principal consultant at analysts Cornwall Insight, said: “Despite recent reductions in the price cap, households are still facing bills that are well above historic levels. This has raised questions about the cap’s purpose, its efficacy in safeguarding consumers, and its impact on tariff competition.

“In light of this, it becomes crucial to explore alternative measures that can better protect consumers, promote fair competition, and ensure affordable and transparent energy pricing for all.”

The CPS report comes as a separate study suggests household energy suppliers could collect £1.74 billion in profits over the next 12 months from customers’ energy bills.

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The first Warm This Winter Tariff Watch report, produced in partnership with Future Energy Associates (FEA), said suppliers have seen the profit they are allowed to make every year from the average customer on the variable tariff surge from £27 in spring 2017 to a high of £130 in early 2023, and currently £60 per customer.

The figures and predictions exclude any profits which firms might also make through Ofgem decisions relating to COVID and Ukraine allowances, which contributed to the recently announced high profits for British Gas and Scottish Power, the report said.

FEA urged customers to exercise “extreme caution” when thinking about switching and fixing tariffs, but said there are some deals worth considering.

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Throughout the first few months of 2023 there were just five fixed tariffs available to small sections of the market; however in July alone that number doubled, with 10 fixed tariffs newly available on the market.

An Energy UK spokesman said: “As Ofgem recently stated, suppliers have lost £4 billion over the last four years – something which this analysis appears to have overlooked. So it’s clear that the theoretical margin allowed in the price cap does not equate to profits made in reality – showing the flaws in basing future projections on that.

“Ofgem has also stated that, while it expects many suppliers to return to making profits this year, this must be seen in the context of these recent losses.

“It’s also worth stressing that the vast majority of customers are on price-capped tariffs, which Ofgem sets to ensure that customers pay a fair price reflecting the costs of supplying energy – and this is unlikely to change significantly over the next few months.”

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May 25 2023

Energy price cap falls significantly as Ofgem reveals new level for average bills | Business News

The energy price cap on household bills has fallen to an annual average of £2,074 between July and September, removing some of the financial pain inflicted by the unprecedented surge in gas and electricity costs.

Industry regulator Ofgem made the announcement against a backdrop of good news for the cost of living crisis – with wholesale energy prices falling.

They spiked last year after Russia’s invasion of Ukraine, which saw both oil and natural gas costs shoot up – a situation that was made worse by the imposition of sanctions on the Kremlin by Western governments.

The new cap figure compares to the £3,280 level set by Ofgem for March-June, meaning a £1,206 reduction in the cap from July and a reduction in average bills by £426 a year.

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However, that cap is currently irrelevant.

That is because the government’s energy price guarantee (EPG), which limits the amount suppliers can charge per unit of energy used, ran throughout the autumn and winter months and remains in force until 1 July.

That keeps bills at around an average annual level of £2,500.

There is no further taxpayer support on the table from July onwards.

The price cap, which is reviewed every three months, will take over again from then. A typical bill should be around £500 cheaper on a 12-month basis.

Current projections predict a stable outlook for energy bills at around the £2,000 level but such a sum remains more than £1,000 above the pre-pandemic average and much will depend on the potential for further wholesale market shocks.

Gas supplies remain the core worry for prices ahead.

Day-ahead wholesale costs peaked at an industry measure of 570p per therm last August but are currently at 66p.

Longer term contracts are more expensive, with year’s end delivery at double that level at around 129p.

That reflects the likelihood of increased demand as winter approaches.

Simon Cran-McGreehin, head of analysis at the Energy and Climate Intelligence Unit, said of Ofgem’s announcement: “Whilst the falling price cap is a relief for households, this gas crisis will linger, with wholesale price forecasts suggesting that the average household energy bill might not get below £1,700 a year for the rest of this decade.

“That’s around £600 (about 50%) above where it was before the gas crisis.”

He also warned: “If we don’t get on with insulating homes, installing heat pumps and building more renewables, gas demand will remain high and that means bills will too.”

The cost of living crisis is set to linger.

While fuel bills have fallen back – with energy set to follow – the latest inflation data showed food costs continuing to rise at an annual rate of almost 20%.

Economists have pointed to a rise in so-called core inflation, which strips out volatile elements such as food, as putting further pressure on the Bank of England to maintain its cycle of interest rate hikes.

They make the immediate pressure on budgets worse by adding to borrowing costs but are designed to dampen demand, and therefore prices, in the economy in the longer term.

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Feb 27 2023

Energy price cap expected to fall – but bills will continue to rise | UK News

Ofgem is expected to announce that it will drop its cap on the amount energy suppliers can charge by around £1,000 – but bills could still rise by an average of £500.

According to the latest forecast from energy consultancy Cornwall Insight, the energy regulator is expected to announce a fall in the cap to around £3,295 for a typical household from April.

But customers are likely to pay 20% more – around £500 – because the government’s additional support (the energy price guarantee) only partially protects them from paying the full price cap.

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Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “Regrettably, the forecast for April looks set to leave the price cap above the increased energy price guarantee level, meaning average annual consumer bills will effectively jump by 20% (£500).

“However, this is before we take into account the end of the £400 energy rebate scheme in March, meaning that the cost of energy for households will increase by even more.

“While tumbling cap projections are a positive, unfortunately already-stretched households will be seeing little benefit before July.

“While prices under the cap remain considerably higher than historic norms, the combination of falling wholesale prices and an increase in the EPG could see the return of competitive tariffs, and with it the chance for consumers to take back some control over their energy bills.”

The government’s energy price guarantee limits the amount paid by domestic customers to 34p per kWh for electricity and 10.3p per kWh for gas – £2,500 a year for a typical household, although the exact total depends on your usage.

The government picks up the difference between Ofgem’s price cap and the guarantee but this support will be cut back from April, meaning the average bill rises to £3,000.

Ofgem’s price cap is currently £4,279 per year for the average household, meaning the government has been paying an average of about £1,779 per year to energy suppliers for every household between September and March.

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The predicted fall of the price cap to £3,295, and the rise of the energy price guarantee level to £3,000, means the government will be paying just £295 per household per year from April to June.

Cornwall Insight said it expects the price cap to fall further later in the year – to £2,153 in July and then £2,161 from October.

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Aug 17 2022

Ofgem director Christine Farnish quits over way regulator calculates energy price cap | Politics News

An Ofgem director has quit over the electricity and gas regulator’s decision to change the way it calculates the energy price cap, which she said will lead to much higher bills.

The regulator confirmed to Sky News that Christine Farnish had stepped down from the board after disagreeing with the rest of its members over how long energy suppliers should have to recoup the current high energy prices.

She wanted suppliers to recoup those prices, which are a condition of the price cap, over 12 months to spread out the cost to customers.

However, the rest of the board, Ofgem said, wanted that to take place over six months as they said that would reduce the “very real risk of suppliers going bust”.

Ms Farnish, who has been a non-executive director since 2016, told The Times she resigned because she did not believe Ofgem had “struck the right balance between the interest of consumers and the interests of suppliers”.

This month, Ofgem announced it was changing the methodology of the cap to enable suppliers to recoup wholesale energy heading costs sooner.

Ms Farnish said she believed the move “would add several hundred pounds to everyone’s bill in order to support a number of suppliers in the coming months”.

Investec analysts estimated the change in method would add more than £400 to the level of the price cap in January – taking it to £4,200 a year compared to £1,971 at present.

Ofgem said: “We are thankful to Christine for her many years of devoted service to Ofgem.

“Due to this unprecedented energy crisis, Ofgem is having to make some incredibly difficult decisions where carefully balanced trade-offs are being weighed up all the time. But we always prioritise consumers’ needs both in the immediate and long term.

“The rest of the board decided a shorter recovery period for energy costs was in the best interest of consumers in the long term by reducing the very real risk of suppliers going bust, which would heap yet more costs onto bills and add unnecessary worry and concern at an already very difficult time.”

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