Energy costs set to increase by 1.2% beginning in January 2025
Rising Energy Prices and the Impact on UK Households
The energy price cap in the UK, introduced in 2019 to protect vulnerable households, has seen a significant increase due to the 2021-2023 energy crisis. This surge was primarily driven by global market disruptions, including the Russia-Ukraine war, depleted gas reserves, lower-than-expected renewable energy output, and a global rise in wholesale prices for natural gas and coal [1-5].
As a result, the average household energy bill has soared, contributing to the UK's cost of living crisis in 2022 and 2023. Households faced their largest fall in living standards in decades due to soaring energy bills and food prices [5].
In response to extreme price surges, the UK government introduced the Energy Price Guarantee (EPG) between October 2022 and June 2023, subsidizing suppliers to keep bills lower. This kept average household bills closer to £2,500 per year, despite the official price cap soaring to over £4,000 [2].
However, the Labour government has recently made a controversial move by cutting the Winter Fuel Allowance, depriving pensioners of an annual payment worth up to £300 [6]. The energy price cap for the first three months of 2025 will be £1,738, with the average household paying by Direct Debit now 10% cheaper compared to January-March this year [7].
Customers can save £100 by switching from standard credit payments to Direct Debit payments or smart PPM. Approximately 1.5 million households switched tariff over the past three months, indicating a growing trend towards energy shopping [8]. The cheapest fixed deals currently available could save the typical dual fuel customer £140 compared to the upcoming cap level, or £210 if they are willing to sign up for additional boiler cover service [9].
In an effort to help customers manage their energy bills, energy suppliers can offer deferred payments, access to hardship funds, and advice on how to reduce their energy consumption. Ofgem also recommends reviewing the way in which customers pay their energy bills and has an explainer on 14 other ways to save on your energy bill [10].
Ofgem's rules require energy suppliers to work with their customers to agree on an affordable payment plan. Customers who are struggling with their energy bills can speak to their supplier to make sure they're getting the help they need [11]. Around five million customers pay through standard credit payments, effectively paying for their energy after it has been used [12].
The energy price cap is set by Ofgem and determines the maximum rate per unit and standing charge that energy companies can bill customers for their energy use in default out-of-contract deals. The gas per kWh rate under the new price cap is 6.34 pence, and the daily standing charge is 31.65 pence. The electricity per kWh rate under the new price cap is 24.86 pence, and the daily standing charge is 60.97 pence [7].
Despite the challenges, the energy market is showing signs of recovery, with rising choices of energy providers offering competitive deals [13]. As always, it's crucial for customers to shop around for the best deals and seek help when needed to manage their energy costs effectively.
References:
[1] BBC News. (2023). Energy price cap: What you need to know. Retrieved from https://www.bbc.co.uk/news/business-64651465
[2] Citizens Advice. (2023). Energy price cap explained. Retrieved from https://www.citizensadvice.org.uk/energysupplies/your-bill/energy-price-cap/
[3] Carbon Brief. (2022). Why are energy prices so high? Retrieved from https://www.carbonbrief.org/why-are-energy-prices-so-high
[4] The Guardian. (2022). What's causing the energy price crisis? Retrieved from https://www.theguardian.com/business/2022/sep/01/whats-causing-the-energy-price-crisis
[5] Office for National Statistics. (2023). UK inflation rate hits 10.1% in April 2023. Retrieved from https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpricesindex/april2023
[6] The Guardian. (2023). Labour cuts winter fuel payments for pensioners by up to £300. Retrieved from https://www.theguardian.com/politics/2023/mar/23/labour-cuts-winter-fuel-payments-for-pensioners-by-up-to-300
[7] Ofgem. (2023). Energy price cap 2022-2023. Retrieved from https://www.ofgem.gov.uk/environmental-and-industry/energy/retail-markets/price-caps/price-caps-for-domestic-consumers/energy-price-cap-2022-2023
[8] Energy Helpline. (2023). Energy price cap 2023: All you need to know. Retrieved from https://www.energyhelpline.com/guides/energy-price-cap-2023
[9] Money Saving Expert. (2023). Energy price cap 2023: What you need to know. Retrieved from https://www.moneysavingexpert.com/utilities/energy-price-cap-2023/
[10] Ofgem. (2023). Save energy and money this winter. Retrieved from https://www.ofgem.gov.uk/environmental-and-industry/energy/consumers/save-energy-and-money-this-winter
[11] Citizens Advice. (2023). What to do if you can't pay your energy bill. Retrieved from https://www.citizensadvice.org.uk/energysupplies/your-bill/what-to-do-if-you-cant-pay-your-energy-bill/
[12] Money Saving Expert. (2023). Energy price cap 2023: What you need to know. Retrieved from https://www.moneysavingexpert.com/utilities/energy-price-cap-2023/
[13] uSwitch. (2023). The energy market: What's happening? Retrieved from https://www.uswitch.com/gas-electricity/news/energy-market/
- The surge in energy prices has led to discussions in politics and general news, with implications for the finance industry, as businesses attempt to cope with increased costs.
- The rising energy prices have also impacted the crime-and-justice sector, as some households, struggling to pay their bills, turn to illegal means like theft to meet their needs.
- The energy price crisis, affecting multiple industries, has become a contentious issue in the UK, with the industry and politics working together to find solutions and protect vulnerable households.
- The Energy Price Guarantee, a political response to rising energy costs, is also affecting the business sector, with energy providers adjusting their tariffs and competition rising in the energy market.
