British households face average annual energy bills surging above £5,000 next year, according to the latest forecast, which will heap further pressure on the government to intervene to ease the spiralling cost of living crisis.
The warning from consultancy Auxilione follows a steep rise in wholesale British gas prices this week and comes as ministers meet electricity generators in Downing Street on Thursday morning. The talks will focus on how to respond to the impact of rising wholesale energy prices driven primarily by Russia’s squeeze gas on supplies to Europe.
The price cap, which governs gas and electricity bills for the vast majority of UK households, has already jumped to £1,971 from £1,277 this year. Earlier this week, another forecast suggested it would hit £4,420 next April, more than three times the level it was at the start of 2022.
Auxilione said it expected regulator Ofgem to set the price cap at “just over £3,600” when it announces the results of its next review, now held every three months, on August 26. That rise would take effect in October before the cap was expected to exceed £5,000 in the first half of 2023, the consultancy added.
Earlier this week, Cornwall Insight forecast the cap would reach £4,420 in the spring, but wholesale gas and electricity prices have risen further in recent days.
The Auxilione forecast follows warnings of a severe drought affecting shipments of coal and other commodities on the river Rhine in Germany, a key artery for supplying power stations. Norway has also signalled it will restrict electricity exports.
Gas prices have soared as Russia has curbed supplies to Europe, in a move European politicians have decried as a “weaponisation” of gas supplies following the full-scale invasion of Ukraine.
Surging energy bills has become a key issue in the ruling Conservative party’s leadership election that will appoint a new prime minister to replace Boris Johnson in early September.
Rising inflation and concerns that sky-high energy prices will tip the wider economy into a deep recession as households cut back on spending have led to calls for more aggressive government intervention, from additional financial support to an overhaul of how electricity markets function.
The prospect of a windfall tax on electricity generators, some of whom have enjoyed bumper profits from renewables and nuclear generation, has resurfaced.
Chancellor Nadhim Zahawi has kept alive the prospect of hitting the generators with an additional tax bill if they do not invest their profits in renewable energy schemes, though other options are also on the table.
Business and energy secretary Kwasi Kwarteng — who is widely tipped to be the next chancellor if leadership frontrunner Liz Truss becomes prime minister — is looking at options to decouple electricity prices unassociated with gas generation.
Companies including EDF, Centrica, Drax and RWE are attending the meeting with Kwarteng and Zahawi.
Former chancellor Rishi Sunak, who is running against Truss, has accused his rival of being slow to appreciate the depth of worry among households and the need for additional financial support. He has promised to expand a £15bn support package he announced in May. At the time bills were expected to reach about £2,800 in October.
Truss has said she favours tax cuts over “handouts” but has left open the door to additional support. She said on Wednesday it was “important” to work with energy companies to bring prices down.
Auxilione said there appeared to be “little appreciation” in government “for just how impossible” it would be to lower prices. “Energy companies and the government have little control over this in such a globally influenced market,” it added.
Ofgem has cautioned about forecasts for the price cap given the volatility in energy prices.