LONDON, Feb 3 (Reuters) – Britain’s energy regulator said on Thursday consumer bills would rise by 54% to 1,971 pounds a year from April, a record leap in response to surging wholesale costs that are forcing the government to provide a multi-billion support package.
Householders in Britain are facing a cost of living crisis, with the leap in energy bills set to come into force in April, the same month that taxes rise and general inflation is forecast to peak at 6%.
The Bank of England is also expected to say it is raising interest rates again at 1200 GMT on Thursday.
Energy regulator Ofgem said the new price cap was being driven by a record rise in global gas prices over the last 6 months, with wholesale prices quadrupling in the last year.
Those households who use prepay metres will see the cap rise to 2,017 pounds.
The Times newspaper reported that the government will provide state-backed loans to energy firms so they can lower bills for now, and recoup the costs when energy prices fall.
Analysts have warned that move looks risky as they currently see the price cap rising further at its next review in October, following a 330% rise in benchmark European gas prices last year.
Tony Danker, director-general of the blue-chip business group the CBI, said government action was “good news” but he worried about the long-term trajectory for the economy, and whether consumers could earn enough to cover bills.
Charity National Energy Action has warned that higher energy prices will likely push a further 1.5 million households into fuel poverty, meaning they are unable to afford to heat their homes to the temperature needed to keep warm and healthy.
“My question is really whether or not the economy is going to grow fast enough after this year for everybody to have the wage growth they need to cope with higher bills,” Danker told Sky News.
“Let’s see the detail. But I think this is a much more profound problem: how is Britain going to grow its economy and grow wages. The government’s in a tough spot.”
Governments across Europe have spent tens of billions of euros trying to shield consumers from record high energy prices, either removing taxes or supporting the most needy, after gas and power prices spiked when economies reopened from COVID-19 lockdowns.
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.
Analysts at BofA said the average Western European household spent around 1,200 euros on gas and electricity in 2020. British households spent an average of 1,370 euros a year on their energy, lower than German and French households at 1,526 euros and 1,406 euros respectively but higher than Italian, Spanish and Portuguese households.
According to media reports, Sunak’s support will allow energy companies to remove 200 pounds from those bills and reclaim them at a later date. The government has previously ruled out cutting VAT on bills, describing it as a blunt tool.
The Times reported the government would also lower local taxes for the poorest households. When combined with the energy loans, the package will total 9 billion pounds ($12 billion).
Sunak’s rescue package for the economy during the coronavirus pandemic, which prevented mass unemployment, may cost as much as 410 billion pounds.
(Reporting by Alistair Smout and Kate Holton; Editing by Nick Macfie and Alexander Smith)