Energy bills could soon rise by up to £100 a year as regulators are expected to announce a significant hike to the price cap on default gas and electricity tariffs, just weeks after its introduction.
Earlier this month Ofgem, the energy watchdog, introduced a cap on the prices of energy bills for customers on “standard variable tariffs”, which customers are automatically moved to after deals finish.
The intervention was ordered by Theresa May, the Prime Minister, to protect vulnerable consumers who are less likely to shop around for cheap energy and are “ripped off ” as a result.
When it was launched Ofgem said it would save 11 million loyal customers £76 each on average by setting the cap at £1,136 a year for a typical dual fuel customer paying by direct debit.
But now energy analysts expect this to rise by as much as £100 within weeks when Ofgem revises the cap, wiping out all the savings households have made so far.
The price cap is revised every six months to take factors including wholesale costs into account, with the first revision scheduled for February 7.
Industry sources told the Daily Telegraph that when designing the cap, Ofgem was under “huge pressure” to come up with a number that was “politically acceptable” when it first came in.
This is despite the fact that its methodology was likely to wipe out the savings shortly afterwards.
Speaking at a conference two weeks ago Dermot Nolan, chief executive at Ofgem, said: “While I cannot say today exactly what it will be, wholesale costs have risen significantly over the last year. As a result, it is likely that we will announce an increase – and potentially a significant one – in the level of the cap.
“Even if this is the case – and obviously I hope that any increase can be ameliorated and as minor as possible, but ultimately I can’t guarantee that as we are committed to passing through efficient costs – customers can still be confident that any increase in the cap only reflects changes in the actual costs of providing the gas and electricity they use – and that they will always pay, as a result, a fair price for their energy.”
The announcement will be made on Feburary 7 and the price rise will come into force on April 1. A rise of £100 would be the largest price rise energy customers will have ever seen in a single day.