Households across the UK will see higher energy bills from tomorrow as the typical bill will rise to no more than £2,500.
The new cap on energy prices, which is a rise of £529, will come into force from October 1, but is only a cap on the cost per unit and not a limit on a household’s total bill.
The government announced the new limit at the start of the month in an aim to ease the crippling cost of living crisis, which has seen fuel, energy and food bills soar.
Energy industry experts have warned households to read and submit their energy meter readings to their supplier before the price hike on Saturday to stop providers from estimating usage and charging a higher rate.
It comes as 16 energy companies were told to improve how they support customers struggling with money by Ofgem this week.
Ofgem had previously announced that the cap would rise to take the typical bill to more than £3,500 per year, with forecasts that this could peak at more than £6,000 in 2023.
But Prime Minister Liz Truss announced a two-year limit on the unit cost of electricity and gas, saving the typical household around £1,000.
Despite the step, markets have been in turmoil this week after the Chancellor announced a swathe of new tax cuts amounting to around £45 billion.
The Government fixed the energy price per unit to £2,500 to stop it rising to £3,549 in October. The cap goes into effect on Saturday
Martin Lewis (pictured Thursday), founder of MoneySavingExpert.com, warned that there is ‘no £2,500 cap’ on energy bills and that households who use more than the typical amount of gas and electricity ‘will pay more’
Gas and electricity prices have increased dramatically, partly driven by Putin’s war in Ukraine
Prices began rising as the world recovered from the coronavirus pandemic and saw a huge uptick in demand for oil and gas.
This was compounded by Putin’s invasion of Ukraine in February, which saw countries across Europe put in place strict sanctions on Russia and limit their reliance on Russian energy sources.
Russia has also cut off energy to various NATO member states by closing oil and gas pipelines.
Ms Truss has said Russia’s invasion of Ukraine had shown up the ‘flaws’ in the UK’s energy strategy over ‘decades’.
‘This is the moment to be bold. We are facing a global energy crisis and there are no cost-free options,’ she said.
The government says households will save £1,150 on average over the next year as a result of the support – which will be implemented using central contracts with suppliers.
The new cap still represents a 27 percent increase to people’s bills, Martin Lewis said yesterday.
The moneysaving expert spoke out on Good Morning Britain yesterday, warning customers not to think there is a £2,500 cap on their bills.
He explained: ‘There is a cap on the standing charges, the daily charge you pay and the unit rate, how much you pay for each unit of gas or electricity you use. That’s what’s capped.
‘The £2,500 figure is what someone on what the Ofgem noted typical use would pay on that cap but if you use more, you will pay more. It is a cap on your unit rate. It limits how much you pay for each unit of gas and electricity.
‘It is not a cap on total cost. The old price cap wasn’t and the new price guarantee, which is effectively a two-year-long price cap, isn’t either.’
A fund will be set up to prop up those who use heating oil, live in park homes or are on heat networks.
There will also be a package of help for businesses facing catastrophe due to soaring energy costs.
They will get ‘equivalent’ support for at least six months, operating through the wholesale energy market.
When questioned on BBC Radio stations on support after six months for businesses, she said more details will be published in around two months.
She also defended her policies amid market turmoil following unfunded tax cuts this week, saying the move could cut inflation by up to five percentage points.
The price cap was introduced in January 2019 as a way to ensure that households who do not have fixed deals are not ripped off by their energy suppliers.
Twice a year, energy regulator Ofgem would set the maximum price that households on their supplier’s default tariff would have to pay for every unit of gas and electricity they used for the next six months.
It allowed for a small profit – capped at 1.9 per cent – that energy suppliers were permitted to take for supplying the service.
When energy prices began spiraling out of control, the frequency of the cap was increased on August 4 from every six to every three months.
The new cap comes just days after Ofgem warned 16 energy suppliers they are not doing enough to help customers struggling to pay their bills.
A review found that all bar one of the UK’s energy suppliers need to make improvements to meet their obligations to support customers having payment difficulties.
Following a full market review, the energy regulator slammed three suppliers – TruEnergy, Utilita and ScottishPower – for having ‘severe weaknesses’ in the way they support struggling customers.
Last week, ScottishPower and Utilita were served with provisional enforcement orders by Ofgem.
This requires them to take urgent measures to address issues raised by the regulator, which identified that Utilita has a ‘lack of support for vulnerable customers’ and ScottishPower needs to address its repayment plans.
ScottishPower, which has more than 4.4 million customers, said it was ‘disappointed’ by Ofgem’s conclusion.
Utilita, which serves more than 1.4 million customers, added it was ‘disappointed’ Ofgem had decided to issue a provisional order ‘rather than to engage with us’.
Meanwhile five suppliers – E, Good, Green Energy, Outfox and Bulb – were found to have ‘moderate’ weaknesses.
And eight energy suppliers – Ecotricity, EDF, E.On, Octopus, OVO, Shell, UW and SO/ESB demonstrated ‘minor’ issues when it comes to identifying customers who may struggle to pay their bills.
One supplier, British Gas, was found to have no significant issues.
Meanwhile Ms Truss has insisted the Government’s tax-cutting measures are the ‘right plan’ in the face of rising energy bills and to get the economy growing despite market turmoil sparked by the Chancellor’s mini-budget.
In her first public comments since the mini-budget market chaos, Ms Truss defended Chancellor Kwasi Kwarteng’s measures, insisting ‘urgent action’ was needed, although she admitted the Government’s decisions have been ‘controversial’.
The Chancellor announced unfunded tax cuts amounting to around £45 billion last Friday, triggering a dramatic drop in value of the pound, which fell to an all time low of 1.03 against the dollar on Monday.
Its value against other currencies also dropped, as did the value of the FTSE 100.
The housing market is also said to be stalling, with estate agents reporting homeowners are already putting their houses on the market if they fear they will not be able to afford their mortgage if interest rates rise.