Unexpected rise in Energy Price Cap shows why Chancellor should take action to bring these costs down

The Energy Price Cap will unexpectedly rise by £3 a year in January, as a rise in the costs of government policies that are added to energy bills cancels out a small fall in the gas prices. This makes clear that more action is needed in the Budget to significantly cut bills, the Resolution Foundation said today (Friday).

Today Ofgem announced that the Energy Price Cap will rise from £1,755 to £1,758 a year on 1 January. The Price Cap remains more than 25 per cent above its level – in real terms – before Russia’s invasion of Ukraine (£1,084 in summer 2021).

A 6 per cent fall in the cost of gas will provide a small amount of relief for struggling families, as nearly half (46 per cent) of a typical household’s gas consumption takes place in the first three months of the year.

But these benefits will be cancelled out by another wave of costs added to electricity prices, this time to pay for the construction of the Sizewell C nuclear power station in Suffolk. A 5 per cent uptick in electricity prices cancels out any benefits from cheaper gas for the typical household and leaves those reliant on electric heating at the sharp end of the winter chill.

The Foundation says that the Budget should reduce electricity prices to bring down bills. By moving the costs of social and environmental policies from electricity bills and onto general taxation the Chancellor can cut typical energy bills by around £160 a year. This would provide households with much needed relief and reduce the differential between electricity and gas prices.

Jonny Marshall, Principal Economist at the Resolution Foundation, said:

“The unexpected and unwelcome rise in the Energy Price Cap comes when Britain is at its coldest, with nearly half of all annual gas is consumed in the first three months of the year. The level of energy prices remains more than 25 per cent higher than in 2021.

“The Chancellor should help families struggling with the cost of living in her upcoming Budget by moving taking some policy costs off electricity bills and onto general taxation. This would cut typical bills by around £160 a year, bring inflation down by 0.3 percentage points, and reduce the extent to which gas is cheaper than electricity.”