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UK households face £21 rise in energy bills in 2021

Suban Abdulla
·3-min read
Photo of two gas burners in the darkness in the kitchen
Currently, the price cap, which will run till March 2021 is set at £1,042 per household for gas and electricity. Photo: Getty

Millions of Brits may have to pay more for gas and electricity bills from April 2021 to help energy suppliers to cover the cost of those who can’t afford to pay for energy due to COVID-19.

Energy regulator Ofgem is considering lifting its cap on household tariffs by £21 ($28) per year to help companies which have been hit by a rise in unpaid bills.

Currently, the price cap, which will run till March 2021 is set at £1,042 per household for gas and electricity. Energy consumers will find out about any price changes in February 2021.

The energy price cap, which was designed to prevent the UK’s largest energy companies from overcharging their customers by setting a fair price, was introduced in January 2019 to protect 11 million households on default tariffs.

Ofgem said that the coronavirus pandemic has left many UK households struggling to pay their energy bills, which would significantly impact energy firms this winter, as energy costs usually rise in the cold months.

“Due to the impact of the pandemic and higher levels of unemployment we are seeing, more households are struggling to pay their supplier for the energy they have used, Ofgem said in a statement. “This is impacting on supplier finances and we expect the number of unpaid bills to rise this winter.”

In October, the regulator called on energy companies to offer struggling consumers “realistic” debt repayment plans or emergency credit if they are on prepay energy meters this winter as part of its plan to prevent households from being left in the dark or without heating.

But under the new proposals, the same customers may face higher bills from April 2021.

Before the pandemic, Ofgem’s price cap included an allowance for bad debt liabilities. But COVID-19 and rising unemployment have accelerated their increase.

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Ofgem said its proposal — which is still subject to consultation, months after lowering the cap on energy bills by £84 — would be partially offset by the termination of a temporary £15 increase introduced to cover the outcome of a judicial review into how the regulator calculated suppliers’ wholesale energy costs during the first cap period.

This means that the net impact of any price changes would be an increase of about £6.

The news comes as many energy firms in the industry face financial losses due to the economic downturn caused by the pandemic.

But Ofgem’s decision has been criticised by leading suppliers in the energy industry.

Greg Jackson, chief executive of Octopus Energy — Britain’s sixth-biggest supplier by market share — said the plans let dominant suppliers off the hook.

"Legacy suppliers charge long-standing customers hundreds of pounds more than new customers," said Mr Jackson, whose firm is now the UK's sixth biggest supplier.”

Jackson added: "If they cared about customers, they could handle COVID-19 debt by reducing this disparity, rather than exacerbating it by lobbying for a hike in the price cap."

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