Energy prices are rising yet again

Ofgem’s price cap: going down. Wholesale prices: falling. Our energy bills: going up again.

Last year was a rollercoaster year yet, for most of us, 2023 is going to get worse before it gets better: the government is increasing energy prices yet again.

But Chancellor Jeremy Hunt is running out of excuses to stick to his plan. Here’s why.

Wednesday 1 March 2023

Let’s remind ourselves why the government is setting household energy prices.

The price we’re paying for energy today is set by the government’s Energy Price Guarantee. With prices set to rise a further 80% last summer, then Prime Minister Liz Truss was forced to act in the face of an “existential” threat posed by a predicted 1.7 million people refusing to pay their bills in protest. It promised tens of billions in state support to limit energy price rises and would run for two years, limiting bills for consumers at an annual average of £2,500.

Her premiership soon fell apart and after the “mini-budget” crashed and burned, newly installed Chancellor Jeremy Hunt ripped up their entire economic programme in an attempt try to restore trust with the financial markets — and made a plan to cut support for energy bills.

Hunt u-turned on the Energy Price Guarantee. He planned to hike the Energy Price Guarantee to £3,000 from 1 April — another huge increase to household bills.

Our energy bills are already at least double the average bill in 2021. These extortionate prices are unaffordable for millions, with many on prepayment meters cut off — so-called ‘self-disconnection’ — because they can’t afford to top-up. Another rise will mean millions more households forced into fuel poverty from next month.

It was an indefensible move then. And now, just a few months later, he’s running out of excuses to push ahead.

The simple reason why? Prices are falling. Wholesale gas prices for 2023-24 are down 75% from their peak in summer 2022.

This means the current Ofgem Price Cap of £4,279 will be cut to £3,280 from 1 April, and. it’s then expected to fall again to below £2,400 from July.

Consumers, however, pay the lowest of the two between the Energy Price Guarantee and the Ofgem Price Cap. So, for 3 months just as we exit a brutal winter, the government will hike our energy bills before the fall in the Ofgem Price Cap kicks in.

And, at the same time, the monthly subsidies we’ve all been receiving through the Energy Support Scheme and the extra payments for those in greater need will end in April.

A double whammy for consumers already facing a very tough spring.

Ultimately given the relatively low cost it would take to “smooth out” the price shock, it makes little sense for Hunt to push ahead with his price hike on 1 April.

But, while the government could — and should — cancel the rise and, it’s still not close to what’s needed to end this crisis.

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The price cap, EPG and wholesale prices graph

Source: the Resolution Foundation (prices beyond February 2023 are forecasted)