“High international gas prices are continuing to drive energy costs in the UK,” said Neil Kenward, Ofgem’s director general for markets.
“We welcome the government’s intervention to remove VAT from electricity bills, without which customers would have faced even higher costs this winter.”
The government’s VAT plan will shave around £45 off the average bill – but prices are still prohibitively high for many, said Simon Francis, coordinator of the End Fuel Poverty Coalition.
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“The Ofgem price cap may limit the unit rates and standing charges that consumers pay, but sadly it doesn’t cap the number of people suffering due to rising energy costs,” he warned.
“Price rises fall hardest on the households who can least afford them, with millions forced to pay more for the same energy or ration the energy they use even further.”
Some 22 million UK households will be impacted by rising bills. About a third of households buy their energy via fixed rate deals; they will not be affected by the increased energy cap. But most will – and around five million households in the UK spend more than 20% of their income on energy.
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Campaigners have urged the government to finance cost of living measures helping this group by implementing a windfall tax on energy company profits.
“A handful of energy firms are banking more than £6 billion in UK profits this year alone,” Francis added. “Billpayers are being asked to pay more, while billionaires count the difference.”
Prime minister Andy Burnham said following Ofgem’s announcement: “It’s difficult for people and I recognise that.”
“But it’s why, within days of taking office, I announced that we would remove VAT off electricity bills to give people that little bit of help.
“That kicks in from October. We know the price cap will have an impact, but it is what we can do right now.”
He added that the government would “continue to look” at how it could bring energy prices down in the long term.
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It’s an urgent question for millions of people, said Jonathan Bean from Fuel Poverty Action.
“We work with people who are choosing between heating their homes and feeding themselves or their children,” he said.
“This winter is set to be even more brutal, so Burnham must act urgently to guarantee everyone the essential energy they need to stay warm and safe.”
According to previous research from the End Fuel Poverty Coalition, around one-in-10Brits has skipped a hot meal to save on energy costs.
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