Energy bills have skyrocketed this year – and will continue to climb.
Financial expert Martin Lewis has just added more pressure on the government to act, now, claiming that it will soon be too late.
Here’s what you need to know.
Haven’t energy bills already increased?
Yes – Ofgem, the energy regulator, raised the maximum amount suppliers can charge households per unit of energy (the price cap) on April 1 this year. This applies to homes in England, Wales and Scotland but not in Northern Ireland.
It increased by 54%, meaning per cap, the average annual energy bill went up by £693. This means customers who were on a fixed tariff of £1,277, will now need to fork out £1,971 – a record level.
So how much more are they going to go up?
The energy price cap is revised every six months by Ofgem, so it is set to rise again in October. While it’s not clear exactly how much it will climb by, Ofgem chief executive Jonathan Brearley originally said a typical household may have to pay up to £800 more on the April increase back in May.
This would bring the total energy bill to £2,800.
Two months after that prediction, he told MPs that it is “clear” that “prices are looking higher than they did when we made that estimate”.
Management consultancy BFY predicted that a typical bill might reach £3,420 by October and £3,850 by January, while analysts from Cornwall Insight suggested we might be paying £3,363 by the beginning of 2023.
Both of these substantial increases are on the cards if Ofgem follows through on plans to increase the price cap every three months rather than every six.
For context, the typical annual energy bill right now is £2,000 a year – already £600 more than seen in October 2021.
Unsurprisingly, data from the Office for National Statistics (ONS) shows that a growing proportion of adults are already saying it is becoming difficult to pay for their energy bills.
How concerned should we be?
Martin Lewis, known as the founder of MoneySavingExpert, has a reputation for sound financial advice and has influenced the government’s policy in the past.
This week, he called for immediate intervention from the government, as the situation is “desperate”, and he’s “never seen anything like this”.
Referring to the startling Ofgem predictions, he told BBC Radio 4′s Today programme: “Let’s be absolutely plain here – we know roughly what the energy price cap is going to be. It’s based on a set algorithm, the algorithm is published, and it’s based on wholesale prices.”
Putting it into context, he said: “Year on year, from last October to this October, a typical house will be paying £2300 more on their energy bills alone. Forget the rises in mobile, and broadband, petrol and food. On energy alone.
“There are lots of different ways you can do this, but let’s be plain: You either have to cut prices or put money in people’s pockets.”
Yet, Lewis claimed that “we have this zombie government” at the moment, as Downing Street is caught up in a Tory leadership battle which will decide the next prime minister. While that is going on, Lewis believes the government is unable make any big decisions.
“People will be panicking, it will be desperate, they’re already panicking right now,” he said.
And, he predicted: “By the time we have the next prime minister, it will be too late.”
The next prime minister will not be in office until September 5. Boris Johnson will be in No.10 in the interim.
Calling on the two remaining candidates for Tory leader, and the outgoing prime minister, Lewis said: “Rishi Sunak, Liz Truss, Boris Johnson – if you’re listening, please, go and sit in a room together, make a collective decision now of what help you can give.”
He continued: “Sit in a bloody room, decide what you’re going to do together, take a little bit of collective action and give the panicking people across the country a little bit of respite from this.”
Referring to the green levies and VAT cuts which the Tory leadership contenders have suggested as solutions to the cost of living crisis, Lewis said these are just “trivial”.
MPs have also warned that millions may fall into “unmanageable debt” unless the government intervenes.
Isn’t the government already helping?
Partly, but as Lewis pointed out, the help provided by the government only goes so far to help with the substantial costs, and does not fully plug the gap.
When Rishi Sunak was the chancellor, he announced a set of measures to help ease the cost of living pressures, including offering every UK household up to £400 off their energy bills.
The package to help the poorest homes is a maximum £1200 – that’s still £900 extra that people have to spend when you take the current energy bills into account.
This is part of a package worth around £37bn from the Treasury announced in May, including an extra push for warm homes discount to help low-income households cope with rising energy bills.
Sunak gave £400 energy bill discounts to all households, £650 to another eight million low-income households, £150 for those on disability benefits and £300 for pensioners.
Why are energy bills rising?
The invasion of Ukraine has had a knock-on effect for European energy supplies.
The pandemic has also meant that the price of gas around the world has risen, because global energy consumption temporarily decreased during global lockdowns.
As the world began to open up again, the demand for energy soared. Combined with a cold winter which ran down gas storage, and a windless summer, there was a real scarcity of resources.
China needed more energy too, after last year’s hot summer meant the use of air conditioners climbed.
The UK has been particularly hard hit as it is one of the largest users of natural gas, with 85% of homes having gas central heating.
To make matters worse, Moscow has been squeezing the natural gas supply to Europe in recent months, in a bid to force the West to stop aiding Ukraine in its fight against Russia.
The UK is less dependent on Russian gas than other European countries, but it does still put pressure on overall supplies.
July’s heatwave also meant London alone had to pay a record price to prevent a blackout, buying power from Belgium as the national grid struggled – indicating that further problems may be down the line in the ongoing energy crisis.
What about energy company profits?
The energy companies are actually benefitting hugely.
British Gas owner Centrica has confirmed a five-fold increase in profits in the first half of this year, taking it to a whopping £1.3bn (compared to the £262m recorded during the same six months last year).
It will also start paying dividends to shareholders for the first time since 2020, as it makes a huge profit through its nuclear, oil and gas business.
When asked if these financial gains should be used to ease the bills for customers, chief executive Chris O’Shea said he was saving customers money by running British Gas prudently.
According to PA agency, he said: “I know it’s difficult to see the word profits, or dividends, or similar words when people are having a tough time. I’m very conscious of this.
“Bear in mind, over the next couple of years we are expecting to pay a windfall tax of probably well over £600m on our UK gas business off the back of the profits that we’re seeing, so a lot of this is going back into society.”
Part of the £400 from the government comes from a one-off windfall tax on energy companies.
Shell has also reported record profits of £9.4bn, double them in just one year.