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Millions face higher energy bills as Ofgem lifts price cap

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The energy price cap is backstop protection from the government. Photo: PA
The energy price cap is backstop protection from the government. Photo: PA

Millions of people in Great Britain will see a significant rise in their energy bills after industry regulator Ofgem’s increase on the cap on prices that companies can charge comes into force from 1 October.

The Labour Party has warned of an energy prices crisis 'crunch point' as families and businesses see their energy bills rise at the same time as the Universal Credit uplift is withdrawn.

Price caps are adjusted twice a year in April and October. The latest change means people on default tariffs paying by direct debit will see an increase on average of £139 ($187) per year, with average bills rising from £1,138 to £1,277.

The energy price cap is backstop protection from the government, calculated by Ofgem. The current increase is the biggest jump, to the highest amount, ever seen since it was introduced in January 2019.

It applies to those on a default energy tariff, whether they pay by direct debit, standard credit or a prepayment meter. About 15 million households in England, Wales and Scotland are estimated to be affected.

The rise in the price cap comes as Labour warned that families and industry face a further squeeze in the spring if the price cap rises again.

Read more: Three more UK energy companies go bust

On Thursday, the government announced that vulnerable households across the country will be able to access a new £500m support fund to help them with essentials over the coming months as the country continues its recovery from the pandemic.

This fund bolsters support from the Warm Home Discount which provides a £140 rebate on energy bills each winter to over 2.2 million low-income households and the Cold Weather Payment which provides £25 extra a week for poorer households when the temperature is consistently below zero.

Labour said the fund is a "temporary and inadequate sticking plaster" and has urged for measures to contain the energy and supply chain crises.

“We are in desperate need of leadership to contain this chaos,” said shadow business secretary Ed Miliband.

“It is Conservative complacency that has led to the fuel crisis, energy costs crisis, and supply chain crisis our country is experiencing, with ministers ignoring warnings from businesses and failing to plan ahead," he said.

He added that “we need to make Brexit work, and that starts with addressing the huge shortfall of HGV drivers that is causing mayhem in our supply chains.”

Read more: Army 'on standby' to deliver fuel as Johnson tries to reassure public

Earlier this year Ofgem's CEO Jonathan Brearley had said "higher energy bills are never welcome and the timing and size of this increase will be particularly difficult for many families still struggling with the impact of the pandemic."

The price cap uplift comes as energy suppliers Enstroga, Igloo Energy and Symbio Energy join an ongoing list of companies that have collapsed in recent weeks amid the surge in wholesale gas prices.

Ofgem confirmed on Wednesday that the three firms, which together represented less than 1% of domestic customers in the market, had ceased trading.

Customers will still continue to get energy supply despite the news, and funds paid into any accounts will be protected where they are in credit.

Domestic customers will also be protected by the energy price cap when being switched to a new supplier.

Watch: The £2bn Green Home Grants scheme explained

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