Energy Update: Analysts Expect Cap To Nearly Double In October!


Energy Update: Analysts Expect Cap To Nearly Double In October!

28th July – Sunak Pledges To Cut VAT As Forecasts Put New Cap At £3,500

According to reputable energy market researchers Cornwall Insight, the energy price cap, which is presently set at £1,971, will increase by approximately 80% in October to almost £3,500 per year for the average home. On August 26, the new level will be disclosed.

The drop in supply from Russia to the European Union has caused wholesale prices, which determine the cap’s level, to rise sharply recently.

There are worries that the maximum might increase to £4,000 in January 2023, pushing millions of households’ finances to the limit. For the purpose of assisting citizens in covering the rising costs, critics are pushing for greater government action.

The regulator, Ofgem, is being urged by MPs to create a “social tariff” in order to make energy affordable for people with the lowest incomes.

As part of his campaign to become the next leader of the Conservative Party and Prime Minister on 5th September, Rishi Sunak promised to eliminate the 5% VAT charge on family energy bills.

The former chancellor declared that he would eliminate the VAT on energy for the following 12 months if the new price cap on energy bills, which regulator Ofgem is expected to announce on August 26 and put into effect on October 1 of this year, exceeds £3,000, saving the typical household about £160.

Mr Sunak has in the past resisted requests to eliminate the VAT from energy bills, but his supporters argue that he is changing his mind given that the change would only be temporary.

According to the most recent projections from energy researchers Cornwall Insights, the new maximum will be £3,244, an increase from the existing amount of £1,971.

The term “energy price cap” refers to the annual maximum that energy suppliers may charge per kWh of gas and electricity (also known as the “unit rate”), as well as the daily maximum “standing charge,” which is the cost of bringing power into your home.

The £400 windfall payment for power bills that Rishi Sunak, the Chancellor, promised in May under the Energy Bills Support Scheme, would be added to the anticipated VAT reduction.


Over the course of the following six months, beginning in October, the £400 will be automatically applied to the remaining amount on each household’s power energy bill. £400 will either be credited to your metre balance or given to you in vouchers if you have a prepayment metre.

A package of other measures aimed at those on means-tested benefits has also been announced.

Rishi Sunak’s VAT pledge – the first tax cut he has unveiled in his campaign to become Conservative party leader – would be part of his ‘Winter Plan’ which he says will address inflation and the general cost of living.

Energy market regulator, Ofgem, released its analysis (13th July) of how suppliers adjusted customer direct debit payments earlier this year. Many households saw steep increases, with 500,000 payments increasing by more than 100%.

The review found that:

  • Over 7 million energy consumers (out of an estimated 11 million) on Standard Variable Tariffs (SVT) saw a direct debit increase between February and April 2022.
  • The average increase was 62%, reflecting the increased cost of gas.
  • Around 500,000 households saw an increase of more than 100%. All customers whose direct debit was increased by 100% or more between 1st February and 30th April 2022 will be assessed by their supplier to determine whether the uplift was appropriate.
  • No evidence was evidence of unjustifiably high direct debits.
  • Some suppliers’ processes are not as robust as they could be, and this could lead to inconsistent, incorrect, or poor treatment of customers.
  • There is a lack of formally documented policies and processes within some suppliers, which risks inconsistent and poor consumer outcomes.
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