The amount that energy companies are allowed to charge for electricity and gas will increase from January, but households will be protected against the increase.
Ofgem, the energy regulator that limits the amount suppliers can charge for each unit of electricity and gas, raised its limit for the first three months of next year to 67 pence per kilowatt hour (p/kWh) for electricity and 17 pence per kilowatt hour (p/kWh). kWh) for electricity and 17 pence p/kWh for gas.
This would normally increase the typical household bill to £4,279 a year.
Well from the government guaranteed energy price means that households are protected against the increase.
The guarantee, introduced on October 1, limits how much the average household pays for its wholesale energybringing the average annual bill to £2,500.
This government cap will be in place until April next year when the threshold is raised to £3,000.
Households won’t have to pay the increase, so it may not be immediately clear why Ofgem’s announcement matters today.
It is because the energy price guarantee is a government subsidy, so that the taxpayer still gets the bill, albeit indirectly.
Pensioners are starting to receive up to £600 from the government to help with utility bills
Autumn statement: Energy bill helps, pensions up and other important announcements from the Chancellor at a glance
And the costs are huge.
Together with a similar, albeit less generous scheme for corporate clients, the cost of the package could exceed £38bn over 18 months, according to the Institute for Fiscal Studies.
It’s impossible to be precise because the actual cost depends on wholesale energy prices (fortunately for the government, these have been falling in recent months).
To put this in context, this is about half of the £100bn spent on leave support and the self-employed income support scheme over 18 months during the pandemic.
Click to subscribe to the Sky News Daily, wherever you get your podcasts from
The cost would have been even higher – around £55bn – if the government had not decided to phase out aid from April next year. Liz Truss’ government initially planned to keep aid at an average of £2,500 over 2 years.
Economists have also warned that households could eventually pay the price as well due to higher inflation.
Government support has so far been untargeted and some people will need the money more than others. The support package is a major boost to the economy at a time when inflation is at its highest point in 41 years.
Earlier this week, the Organization for Economic Co-operation and Development (OECD), the Paris-based think tank, warned that the aid would “increase pressure on already high inflation in the near term”.
This will force the Bank of England to raise interest rates, it warned, raising borrowing costs across the economy.
Britain is not alone in this. France and Germany also risk running into similar problems, the OECD warned.
So while the increase in the Ofgem price cap may not have an immediate impact on households, the cost will ultimately be borne by all of us.