What does today’s energy price cap actually mean for your bills?

What does today’s energy price cap actually mean for your bills? The price cap rise will push bills to their highest since July 2023 - Bookmark - CommentsGo to comments Household energy bills are set to rise from October after regulator Ofgem raised the price cap to a three-year high. The energy price cap will rise by 4 per cent from October 1 for a typical household in England, Scotland and Wales. The regulator said bills will rise by £60 per year – or £5 per month – to £1,723 for the average household using both electricity and gas. That's the highest average bill since July 2023. What is the price cap? The energy price cap protects around 22 million households by limiting the maximum rates and standing charges that energy suppliers can charge. It is updated every three months to reflect changes in the underlying costs of supplying energy. Why has Ofgem raised the price cap? The Middle East conflict has affected wholesale prices. In addition, the ongoing heatwaves across Europe have added further pressure by increasing gas demand for power generation to meet air conditioning and cooling demands. What does this mean for your bills? Currently, the typical household pays £1,663 a year for gas and electricity under the price cap. But based on the energy use of a typical domestic household, from October, that will rise by about £60 per year , or £5 a month, to £1,723 for the average household using both electricity and gas if this level was sustained for a year. Around 11 million households (35 per cent) are on fixed tariffs and will not be affected by this rise. Despite the rise being the highest in three years, prices remain 52 per cent below the height of the energy crisis in 2022 when the government stepped in to cap bills at £2,500, according to Ofgem. How has the Government's decision to remove VAT affected this change? The increase in October is less than otherwise expected because of the proposed removal of VAT from household electricity bills. The Prime Minister previously said removing VAT would knock around £45 off the annual Ofgem price cap from October. While higher wholesale prices are pushing up both gas and electricity costs, the VAT reduction means electricity bills will remain broadly stable. As a result, most of the increase in the price cap is driven by higher gas costs, with gas bills rising by 8 per cent, meaning that households which do not use gas will see a much smaller increase of less than 1 per cent, Ofgem explains. The VAT removal also benefits customers currently on fixed tariffs, with the discount automatically applied by suppliers. Join our commenting forum Join thought-provoking conversations, follow other Independent readers and see their replies Comments