Energy bills: Why are your bills rising so sharply and what can you do about it?

Millions of us face a spike in energy costs

Ofgem on Thursday confirmed energy bills will rise by £693 to an average of £1,971 a year. The energy regulator increased its cap by 54 per cent. The announcement comes as National Insurance is also set to increase in April, and interest rates are also rising in what is set to be a difficult year for Brits. Here is everything you need to know...

Why are energy bills rising?

Natural gas is around four times the price it was a year ago. This is largely due to two things: a cold European winter in 2021, which drained supplies, as well as increased demand from Asia and China. A spike in demand in 2021 after a relatively low-usage year due to the pandemic in 2020 compounded the problem. Usually, a spike in energy prices can only rise so far, due to something called the price cap - that is the maximum amount suppliers can charge customers for each unit of energy. However, the cap has risen significantly, adding hundreds of pounds onto the annual bill for 22 million homes.

How much are energy bills rising?

Ofgem has increased its cap by 54 per cent. This will see energy bills rise by £693 on average for customers paying by direct debit with default variable gas and electricity tariffs rising to an average of £1,971 a year. Those using prepayment meters, around 4.5 million customers, will see an increase of around £708, taking their bills to £2,017 each year on average. This comes after the 12 per cent price cap rise we saw last October, which took average annuals energy costs to to £1,277 for customers. The regulator's new price cap will come into effect in England, Wales and Scotland in April and will apply until the end of September.

What about the general cost of living?

The general cost of living is forecast to rise this year, which also doesn't help the families that will be already be suffering.

National Insurance will also increase by 1.25 per cent in April - impacting people to varying degrees depending on their earnings. Prime Minister Boris Johnson and Chancellor Rishi Sunak have faced pressure from Tory MPs to scrap or delay the rise, but have stuck with the policy, insisting it is integral to clearing covid backlogs. Meanwhile, the Bank of England has raised interest rates for the second time in three months in a bid to cool soaring prices.

Shortly after the energy price hike announcement, the Bank announced it has increased interest rates from 0.5 per cent from 0.25 per cent. This is in a bid to make borrowing and spending more expensive, in order to make consumer prices cheaper. While it sounds logical, the method isn't guaranteed to work because major factors driving inflation are influenced by global forces.

The Bank of England has warned inflation could reach around 7 per cent in spring, BBC reports, despite its target being just 2 per cent.

What can I do to keep my prices low?

There are a number of ways you can save on your energy bills, according to Which?

Installing and using central heating controls can save £75, getting a new boiler can save £195, and draft-proofing windows and doors can save £25 each year.

Even small changes can help - switching to energy-saving LED lightbulbs, for example, can save £180. Turning off appliances at the plug can save £30 each year, according to Money Supermarket. Turning your heating down by just one degree could also save £80 each year, and you can save around £25 a year by washing up in a bowl rather than using a running tap.

Using energy-efficient dishwashers, washing machines and other appliances is also advised. Even doing one less wash a week could save you a fiver each year.

Here's how the government will support those struggling to pay their bills

All domestic electricity customers will get £200 off their electricity bills from October, Sunak announced in the Commons on Thursday. But this discount will automatically be repaid from people's bills in £40 instalments over the next five years.

Sunak said the government wants to make sure the increase in prices is smaller initially and spread out over a longer period.

"We will spread out the price shock of rising energy bills over time," Sunak told the Commons.

People in council tax bands A to D will also get a £150 council tax rebate in April, Sunak confirmed, meaning 80 per cent of council taxpayers in England get the saving.

There will also be £150m for local authorities in England to help lower income households.

What's the reaction been?

Responding to Sunak in the Commons, Labour's shadow chancellor Rachel Reeves criticised him for not scrapping VAT on energy bills.

She said the "uncomfortable truth" is that families in Britain will still be paying hundreds of pounds more for energy, and cutting back to pay bills.

Reeves said the grants to power companies is a "buy now pay later scheme that loads up costs for tomorrow".

Labour MP for Rhondda Chris Bryant said £350 "isn’t going to touch the sides of the problem for my constituents".

He listed how costs have risen: gas and electricity up by £686, fuel rising by £314, the average weekly shop up by £385 over the course of a year, Universal Credit cut by £1,040, National Insurance up by £150 and frozen tax allowances costing £300.

It's a total of £2,875 a year in additional costs in a place where the average salary is £27,000, he said. But Sunak said Labour's proposals on energy would have saved less than his plans.

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