As many as four in 10 people in Britain could fall into fuel poverty when the price cap rises again this autumn, energy bosses have told MPs as they called for more government support for vulnerable households facing a “truly horrific” winter.
Michael Lewis, the chief executive of E.ON UK, said between 30% and 40% of people in Britain might go into fuel poverty from October when the industry regulator, Ofgem, is again expected to put up the annual limit on tariffs.
“We are expecting a severe impact on customers’ ability to pay,” he told MPs at the business, energy and industrial strategy select committee in parliament, adding that he expected debts of customers to rise by 50% or £800m.
How does the energy price cap work?
The cap, one of the biggest shake-ups of the energy market since privatisation, came into effect on 1 January 2019 for 11m households on default tariffs, known as standard variable tariffs (SVTs). The government told the energy regulator, Ofgem, to set the cap because ministers argued people on SVTs were being ripped off by big energy firms capitalising on consumer loyalty. The limit is not an absolute one but the maximum suppliers can charge per unit of energy and for a standing charge. There is a separate cap for 4m homes on prepayment meters.
So why are prices moving higher?
In short: if energy market prices climb higher, the cap must move higher, too. The cap is designed to reflect the costs energy suppliers face, the largest of which is sourcing gas and electricity from the wholesale markets. In recent months energy markets have reached historic highs because of tight global gas supplies, causing one of the steepest energy price increases on record. Market prices have continued to climb since the new cap
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