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UK energy regulator increases price cap by 80%

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The typical UK household gas and electricity bill is set to rise to £3,549 a year from £1,971 at present from October, the sector’s regulator confirmed on Friday, as consumers grapple with a cost of living crisis caused by rising costs. energy costs.

Ofgem said the 80 percent increase in the so-called price cap, which sets the maximum a household will pay for typical energy consumption from October, was due to the rise in wholesale gas and electricity prices due to Russian restrictions on supplies to Europe

The latest forecasts for the sector suggest that the price cap could rise to more than £6,600 a year by the spring, more than fivefold from the price cap of £1,277 in October last year.

The UK government is increasingly faced with demand for the next prime minister, who will take office early next month after the conclusion of the Conservative leadership campaign, to provide additional support to households to avert a deep recession.

Foreign Minister Liz Truss and former Chancellor Rishi Sunak, the two candidates in the race, have warned that the crisis could last for several years as Russia halted gas supplies to Europe in the wake of its invasion of Ukraine.

Jonathan Brearley, chief executive of Ofgem, said the £15 billion in government aid announced in May, which will bring £400 for each household and more for those on benefits, would no longer be enough. In May, the price cap was predicted to be around £2,800 a year by October.

“The government’s bailout package is providing help at the moment, but it is clear that the new prime minister will need to take further action to deal with the impact of the price hikes coming in October and next year,” Brearley said.

“We are working with ministers, consumer groups and industry on a range of options for the incoming prime minister that will require urgent action. The response will have to match the scale of the crisis ahead.”

The UK business department said it is “making appropriate preparations. . . to ensure that any additional support or commitments on the cost of living can be delivered as soon as possible once the new Prime Minister is appointed”.

Chancellor Nadhim Zahawi, who was appointed by outgoing Prime Minister Boris Johnson last month, acknowledged the increase would cause “stress and anxiety for many people”.

“I’m working hard to develop options for further support,” he said. “This means that the incoming prime minister can get started as soon as possible and provide support to those who need it most.”

Rachel Reeves, the shadow chancellor, said the latest figures would “frighten many families”, adding that the public deserved a government that could “capture the magnitude of this national emergency”.

Labor has said it would limit bills to current levels below £2,000. It has proposed raising funding for such action by tightening offsets and rebates for oil and gas companies in the windfall tax Sunak introduced in the spring.

Cornwall Insight, an energy consultancy that is one of the most accurate predictors of future price caps, said Friday the latest forecasts showed an expected increase to £5,386.71 for the first quarter of next year. The limit will then be adjusted in January, as Ofgem now runs reviews every three months instead of six.

By the second quarter of next year, the price cap was expected to be £6,616.37, Cornwall Insight said, before being lowered slightly to below £6,000 in the third and fourth quarters of next year. The consultancy warned that a major overhaul of UK energy policy was needed to deal with the protracted crisis.

“Today should be seen as a wake-up call for policymakers that short-term thinking and triage of the energy system is not enough,” the consultancy said. “Without real change in the energy system in this country, it will be consumers, suppliers and the economy that will all continue to be affected.”

The government is considering several proposals, including one from Scottish Power, one of the UK’s largest energy retailers, which could bring price cuts to the majority of households, although no decision has yet been taken.

Scottish Power’s proposal is expected to require funding of at least £100bn over the next two years, with costs spread across household bills for the next 10 to 15 years, included in general taxes, or a combination of both. However, that £100bn figure could rise if wholesale energy costs continue to rise.