Around 1.5m Scots households will see their energy bills soar by up to £139 a year after the regulator hiked the price cap by the biggest increase yet.
Households that use a default energy tariff to buy their gas and electricity can expect a sharp increase in their bills from October this year after the regulator lifted its energy price cap for the winter.
The sharp 12% rise, which will impact half the population, is said to be driven by a surge of more than 50% in wholesale fuel costs over the last six months with gas prices hitting a record high as global economies recover from the COVID-19 crisis, according to Ofgem.
From October, the three in four customers on default tariff customers paying by direct debit will see an increase of £139 from £1,138 to £1,277, while the rest who are on prepayment meters will see a rise of £153 from £1,156 to £1,309.
The cap rise is also expected to trigger a rise in fixed-rate deals, which are usually cheaper than default tariffs but which have been drifting higher as the UK’s gas market has reached 16-year highs.
The energy price cap rise comes on top of a £96-a-year increase to the price cap announced six months ago, which came into effect from April.Charities had warned the price cap rise would be a “cost of living shock”.
The rise in energy bills comes as a recent survey found that three in 10 (28%) households with children at home say they have struggled to pay their bills in the past week.
Campaigners have also said the increase “comes at the worst possible time” and warned it will push an extra 488,000 households into fuel poverty, with more than four million people already estimated to be behind on their household bills.
The hike will coincide with the ending of the job support furlough scheme and the temporary £20-a-week boost to benefits.
Citizens Advice Scotland (CAS) warned consumers are facing a ‘perfect storm’ of higher bills and reduced incomes in the autumn.
CAS fair markets spokeswoman Kate Morrison said: “News of this increase points towards a perfect storm for consumers this autumn, with higher bills coinciding with an end to the furlough scheme and proposals to cut Universal Credit by £20 per week,
“Lots of people are struggling just now. 1 in 7 people are struggling on their present income according to polling for CAS. That’s before higher bills and lower incomes this autumn.
“That this increase seems to be driven by the increasing cost of fossil fuels should also focus the mind ahead of COP 26 in Glasgow this year. It’s another example of why we need to switch to low carbon heating as alongside the right actions from government it will be cheaper for us all in the long run.”
Justina Miltienyte, energy policy expert at price comparison siteUswitch.com, comments: “The price cap rise is the ultimate triple blow for homes across the country.
“Come October, energy bills will be an eye-watering £235 more than they were just one year ago, following a hike of £96 back in April.
“This should be a real wake up call to consumers that the price cap will not protect them from skyrocketing bills.
Uswitch data shows there is a £241 difference between the new price cap and the cheapest fixed deals on the market.
Ofgem said gas prices have risen to a record high in Europe “due to a recovery in global demand and tighter supplies”, which was increasing the cost of heating homes and pushing up electricity prices.
Jonathan Brearley, the chief executive of Ofgem, 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 means suppliers only pass on legitimate costs of supplying energy and cannot charge more than the level of the price cap, although they can charge less. If you’re struggling to pay your bill you can get in touch with your supplier to access the help that’s available and if possible, shop around for a better deal.”
Some analysts said energy suppliers had already slashed savings available to households that switch energy supplier by £180 since the start of July 2020.
Price comparison site comparethemarket.com said that even before the cap rise that energy deals were at their highest cost for more than two years. The average price for one of the cheapest deals on the market was at £996, the highest point seen since February 2019.
Simon Francis of the End Fuel Poverty Coalition said: “This unprecedented hike in energy bills comes at the worst possible time for millions of households across the country.
“Switching advice and the price cap may provide some protection from the worst excesses of the energy market, but this will be no comfort to those now facing the stark choice between heating and eating.”
Caroline Abrahams, charity director at Age UK, said: “The level at which energy prices are capped is of enormous importance to older people, because we know they are less likely to switch providers for a better deal – especially if they are not online, which is the case for about half of the 75-plus population.
“For all those who are therefore effectively stuck on their existing tariffs, the best protection they have against unfair and unaffordable fuel bills is a robust energy price cap.
“Unfortunately, the fact that the cap is going up significantly this year will set them up for a miserable and anxious winter.”