Household energy bills will rise by approximately 80% to £3,549 in October putting heavy pressure on the new prime minister (PM), Liz Truss or Rishi Sunak to help struggling homes pay their bills.
No new financial support for households is likely until one of the two is appointed as Boris Johnson’s successor on 5 September, but it will be top of the in-tray for whoever does take charge.
What have politicians said?
The new price cap represents a 178% uptick compared to a year ago and current chancellor Nadhim Zahawi insisted the government was working hard to alleviate stress for households.
“I know the energy price cap announcement this morning will cause stress and anxiety for many people, but help is coming with £400 off energy bills for all, the second instalment of a £650 payment for vulnerable households, and £300 for all pensioners," he said.
“While Putin is driving up energy prices in revenge for our support of Ukraine’s brave struggle for freedom, I am working flat out to develop options for further support.
“This will mean the incoming prime minister can hit the ground running and deliver support to those who need it most, as soon as possible.”
Frontrunner Truss promised to use an emergency budget to "ensure support is on its way" if she succeeds, with Sunak aiming to cut VAT on bills.
Outgoing prime minister Johnson confirmed that the government will announce new financial support next month.
The support is “clearly now going to be augmented, increased by extra cash that the government is plainly going to be announcing in September”, he said.
Although Johnson made it clear that the Tories should not be “trying to cap the whole thing for absolutely everybody, especially the richest households in the country.”
Today's price cap comes into effect for approximately 24mln homes across England, Scotland and Wales on default energy tariffs on 1 October and will be in place for the three months leading up to 31 December, when it will likely be revised upwards again.
Scotland’s First Minister Nicola Sturgeon believes the energy price cap rise “cannot be allowed to go ahead” due to its unaffordability for millions of households.
She tweeted: “This rise must be cancelled, with the UK gov and energy companies agreeing on a package to fund the cost of a freeze over a longer period, coupled with fundamental reform of the energy market.”
Scotland’s energy secretary Michael Matheson, meanwhile, agreed with Sturgeon, insisting the hike is “unsustainable” and would have a detrimental impact on families, with millions being plunged into ‘fuel poverty.’
Ed Davey, leader of the Liberal Democrats, also wants the government to scrap the increase altogether and fund the £40bn cost, as predicted by one supplier, via windfall taxes.
What can be done?
Whoever is set to become the next PM will be forced to introduce fresh support, according to The Institute for Fiscal Studies (IFS).
The new hike in the price threshold means existing government support will cover just 47% of the increase in bills, it added.
IFS said covering the same proportion of the rise would cost another £14bn.
“Looking beyond this winter, energy prices also look like they will remain very high well into next year, which will put pressure on the government to provide further support in the coming months,” Isaac Delestre, IFS economist, commented.
The think tank said Friday morning that a “substantial package of support” will be unavoidable no matter what is said on the campaign trail or the outcome of the vote.
The IFS stated it is not so straightforward to assess the effect of Truss’s plans to slash green levies.
“Cutting only those levies that still add to bills would be complex as they are linked to various schemes and subsidies and apply to business as well as households, but would save households around £50 on average over the three months from October,” the think tank said.
Sunak’s plan to cut VAT on energy bills would be expected to save an average household £51 between October and December, costing the government £1.4 billion, IFS commented.
Earlier in the week, Keith Anderson, the boss of big six supplier Scottish Power, proposed a £100bn plan to freeze bills for everyone for two years.
Under his proposal, energy suppliers would cover the gap between the cap and the wholesale price of gas and electricity by borrowing from a “deficit fund”, arranged by the government through commercial banks.
The cost would be gradually paid off either through government borrowing funded by taxes, spread over bills for the next 10-15 years, or a combination of the two.
Business Secretary Kwasi Kwarteng, tipped to be the new chancellor if Liz Truss wins, is said to be keen on the idea though Rishi Sunak is said to be very much less so.