By Kate Holton and Susanna Twidale
LONDON (Reuters) – The scale of the financial pain heading towards Britons will be laid bare on Thursday when the energy regulator announces an increase to its price cap, with under-pressure households expected to see bills soaring by about 50%.
Ofgem will unveil the new cap at 1100 GMT – an hour before the Bank of England is expected to hike interest rates to tame surging inflation.
The cap covers consumers on standard variable energy tariffs, rather than fixed tariffs, equating to around 22 million households, and will come into effect from April following a period of surging wholesale energy costs.
Prime Minister Boris Johnson has promised a package of measures to help soften the blow, but charities warn millions of low-income families will not be able to afford to properly heat their homes, heaping pressure on his government.
“It’s going to be somewhere between devastating and catastrophic for households across the country,” Simon Francis, coordinator of the End Fuel Poverty Coalition, told Reuters.
Governments across Europe have spent tens of billions of euros trying to shield consumers from record high energy prices, such as removing taxes or supporting the most needy households, after benchmark European gas prices surged 330% last year.
In Britain, a six-month price cap has limited the immediate impact on consumers, forcing the pain on to suppliers instead, with more than 25 going out of business since the start of 2021. Many had not hedged against future cost hikes.
Octopus Energy, Britain’s fifth biggest supplier with more than three million customers, said in January it expected to incur around 100 million pounds of losses.
Consultancy Cornwall Insight said it expected the regulator to lift the cap on the cost of gas and electricity by 49% to 1,897 pounds ($2,572) per year for a typical household, up from a previous record high of 1,277 pounds.
The jump in bills in April will coincide with a rise in taxes and a forecast peak in general inflation of 6%, a figure the central bank could revise up on Thursday.
Higher energy prices will likely push a further 1.5 million households into fuel poverty, charity National Energy Action said, meaning they are unable to afford to heat their homes to the temperature needed to keep warm and healthy.
This would take the total number of British households in fuel poverty to six million, more than a fifth of homes.
Even before the April increases, two thirds of adults in Britain saw their cost of living rise from December to January, according to a survey by the Office of National Statistics, with more than half of those saying they were spending less on non-essential items.
With the pressure growing on Johnson’s government to find a response to the looming cost of living crisis, and the threat it poses to consumer-facing businesses, ministers are expected to set out further support on Thursday.
Britain, which imports around half of its gas from the international market, has ruled out a cut to VAT on energy bills. The Times newspaper said it would instead provide state-backed loans to energy firms so they can lower bills for now, and recoup costs at a later date when energy prices fall.
Francis, of the End Fuel Poverty Coalition, said that “heat now, pay later” looked like a risk at a time of volatile markets and with major European gas supplier Russia locked in a dispute with the West over Ukraine. He has urged the government to insulate Britain’s draughty homes.
Ofgem, which had been due to set the price cap next Monday, will publish the details hours after energy giant Shell (LON:RDSa) reports what is expected to be a jump in quarterly profits due to higher oil and gas prices and rising demand.
($1 = 0.7375 pounds)
Britons to find out scale of energy price hike on Thursday