Energy bills face largest four-year increase in January

Household energy prices are expected to experience their most significant rise in four years when the new price cap takes effect in January. Figures shared with the BBC indicate that a typical annual bill is forecast to increase by £276, representing a 16 per cent jump. This predicted surge will impact millions of households during the coldest months of the year, placing considerable strain on domestic finances and intensifying pressure on the government to provide further support to those struggling to pay.

The forecast, produced by consultancy Cornwall Insight, arrives just one day before current prices rise under the regulator Ofgem’s October price cap. Approximately 20 million households in England, Scotland and Wales are currently on variable tariffs governed by this cap, which sets a maximum price for each unit of gas and electricity. These consumers will see a 4 per cent price increase on Thursday, equivalent to roughly £60 per year or £5 per month. This adjustment takes the annual bill for a typical household using both fuels and paying by direct debit to £1,723, assuming the current rate is sustained for a full year.

The government’s reduction in Value Added Tax on electricity has mitigated this immediate increase, knocking approximately £45 off a typical annual bill. However, the outlook for January is considerably more severe. Cornwall Insight projects that the typical annual bill will climb to £1,999. Craig Lowrey, principal consultant at Cornwall Insight, warned that these prices will hit households hard, noting that January is already a difficult month due to cold weather and bank balances still recovering from the Christmas period.

The primary driver behind the predicted rise is the disruption to gas supplies resulting from the conflict in the Middle East, which has led to low gas storage levels in Europe. Lowrey cautioned that rebuilding these stocks could result in high bills persisting well beyond the winter season. While this remains a prediction at this stage, with Ofgem not expected to announce the actual January price change until late November, the price-setting period is already halfway through. With little sign of a truce or lower international energy costs, a substantial increase for those not on fixed tariffs appears highly likely. Lowrey described a January rise as all but certain.

The financial burden is already being felt by consumers. Aaron Richards, a resident of Maidenhead, described a situation where all his costs are rising. He noted that he is working more overtime and reducing takeaways to cope, while also paying record high prices for diesel to travel to work. He expressed frustration that essentials such as heating and food have become a challenge, highlighting that some of his acquaintances can no longer afford to heat their homes.

The accumulation of unpaid bills is a growing concern for the sector. Recent data from Ofgem indicates that customers collectively owe more than £5 billion in unpaid bills and charges to suppliers. A proposed debt relief scheme is currently on the table, with campaigners urging the government to provide the necessary funding for its implementation. Adam Scorer, chief executive of the fuel poverty charity National Energy Action, stated that the current situation is unsustainable for both households and the market. He called on the government to deliver additional targeted support for the most at-risk households this winter, alongside measures to tackle energy debt and improve the efficiency of the least insulated homes.

Simone Rossi, chief executive of supplier EDF Energy, has also warned that the UK is walking into a second significant energy crisis, similar to the one experienced four years ago. Speaking to the BBC, Rossi urged the government to extend the VAT cut on electricity beyond April, when it is due to expire. He also called on ministers to approve the development of the Jackdaw gas field off the coast of Aberdeen and the Rosebank oil field off Shetland. The government has stated that it will consider ways to offer breathing space to billpayers facing the cost of living.