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Energy bills: MPs warn £400 discount not enough to mitigate October rise

Energy bills jumped 54% in April as households face the tightest squeeze since the 1970s. Photo: Jon Super/Xinhua via Getty
Energy bills jumped 54% in April as households face the tightest squeeze since the 1970s. Photo: Jon Super/Xinhua via Getty (Xinhua News Agency via Getty Images)

Ministers have called on the UK government to immediately change its "out-of-date" energy bill support for households before the cost of living crisis accelerates further.

A massive insulation drive needs to be launched "urgently" to permanently bring down bills, according to a new report by the Business, Energy and Industrial Strategy (BEIS) committee.

MPs flagged problems with the support that former chancellor Rishi Sunak had promised to households, saying it has simply been left behind by rising energy prices.

In May, Sunak — who is now running to become prime minister — announced a £15bn support package for households struggling with energy bills.

The package, announced in May, gave £400 energy bill discounts to all households, £650 to another 8 million low-income households, £150 for those on disability benefits and £300 for pensioners.

However things have since moved on, with new predictions of households facing even more misery as prices surge at the fastest pace in 40 years, putting the tightest squeeze on household budgets in decades.

Read more: Rishi Sunak unveils £15bn aid to help UK households struggling with rising energy bills

MPs also asked the government to consider abandoning the energy price cap altogether in favour of a discounted social tariff for the most vulnerable families.

The energy price cap jumped 54% in April and average bills rose by £693 a year for around 18 million households on standard tariffs, and £708 for 4.5 million prepayment customers.

Prices are forecast to rise to more than £2,600 a year in October when the cap is next reviewed.

The committee accused regulator Ofgem of "incompetence over many years" which allowed poorly run and backed firms to start energy companies, which were likely to fail when gas prices soared as they did last year.

When suppliers fail, some of the cost of dealing with its collapse are spread across all households.

It warned of the £94 that will be added to household bills after 30 energy suppliers collapsed in a little over a year.

"Ofgem failed to use its existing powers and didn’t bring action against energy suppliers even when it was clear that they should have done," the committee said.

It added: "Negligent energy regulator Ofgem enabled now bankrupt energy firms and inexperienced CEOs to increase energy bills further."

Read more: UK inflation hits 9.4% as prices as prices rise at fastest rate for 40 years

A spokesperson for Ofgem, said: "While the unprecedented rise in global gas prices would have resulted in market exits under almost any regulatory system, we have been clear and transparent about the fact that suppliers and Ofgem’s previous financial resilience regime were not robust enough. This contributed to some of the supplier failures since August 2021.

"No regulator can, or should, guarantee companies will not fail in a competitive market but we are working hard to reform the entire market, as well as closely scrutinising and holding individual energy suppliers to account, to further strengthen the regulatory regime."

The committee concluded that while the government can step in with support now as gas bills soar, in the long run it needs to reduce the demand for energy.

Darren Jones, the chair of the BEIS committee, said: "Once again, the energy crisis is racing ahead of the government.

"To prevent millions from dropping into unmanageable debt it’s imperative that the support package is updated and implemented before October, when the squeeze will become a full-on throttling of household finances and further tip the economy towards recession.

"This winter is going to be extremely difficult for family finances and it’s therefore critical that public funds are better targeted to those who need it the most."

Watch: Why are gas prices rising?