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Energy price cap is expected to rise £150 this week

Energy suppliers have upped the cheapest energy deals by £180 in a year, as the new price cap level is expected to rise for millions of households later this week, new research has revealed.

The increase comes as energy deals have reached the highest cost for more than two years, according to data from Compare the Market.

The average price for one of the cheapest deals on the market is currently £996, the highest charge seen since February 2019.

The news comes ahead of the new energy price cap level being revealed this Friday with experts expecting it to increase by £150 – the highest increase yet.

Millions of households are expected to see a hike in their energy bills after cap is reviewed

It currently stands at £1,138, after rising by £96 a year in April, with the new changes taking effect on 1 October.

The cap was introduced in 2019 to stop providers charging rip-off prices to households that do not switch every year.

It is now estimated to rise for millions of households due to an increase in wholesale energy costs with prices also rising as providers cope with missed customer payments caused by the pandemic.

Many suppliers price their tariffs right up to the limit and have been accused of treating the cap as a target. 

The rise in energy costs comes as households with children at home say they are struggling with their finances.

Compare the Market found that 28 per cent of families with children at home struggled to pay their bills in the past week, compared with 15 per cent of those without children at home.

Alex Hasty, energy expert at Compare the Market, said: ‘A further increase to the energy price cap will see energy costs shoot up for millions of households.

‘While suppliers have been increasing prices across the board, it still remains significantly cheaper to switch to a competitive tariff.

‘It should act as a useful reminder that the price cap is not there to serve as protection from hefty price increases and households should be alert to price changes when they take effect.

‘There is plenty of time for those households that might be impacted to take action and save themselves from paying considerably more than they need to for their energy.’

Homes in one of lowest income brackets say they spend 10% of after-tax income on energy bills

Homes in one of the lowest income brackets spend 10% of after-tax income on energy bills

Increase could send people into debt 

Meanwhile, 27 per cent of bill-payers say an increase of more than £10 a month on their energy bills could force them into debt, separate research from Uswitch has revealed.

It found 17 per cent have struggled to pay for their energy over the past 12 months and 11 per cent say they could not cope with any increase in bills.

Customers on Standard Variable Tariffs and prepayment meters will be directly affected by any increase in the price cap with three fifths of these homes saying they are stressed at the thought of the price cap rising.

Households in one of the lowest income brackets of £20,000 and under say they spend 10 per cent of their after-tax income on energy bills.

Meanwhile, 13 per cent earning less than £20,000 are also on prepayment meters – one of the most expensive ways of paying for energy – compared to just two per cent of those earning more than £40,000.

27% of bill-payers say a rise of over £10 a month in their energy bills could force them into debt

27% of bill-payers say a rise of over £10 a month in their energy bills could force them into debt

The impact of an increase is already being felt by bill-payers with a third of households saying their bills are higher than they were this time last year.

However, this is partly due to the pandemic with more people spending time and working from home.

Some 14 per cent said they also often worry about paying their bills whilst 61 per cent of younger consumers aged 18 to 34 are stressed at the thought of the price cap rising.

At the same time, 30 per cent of households are planning to reduce their energy use this winter so they can afford their energy bills.

The same amount said they would reduce the temperature of the thermostat to save money whilst 13 per cent would turn off the heating altogether with the same number saying they would cut down spending on essential food.

Justina Miltienyte, energy policy expert at Uswitch, said: ‘Many people are already in a risky position financially, and it’s worrying that an increase of £10 per month in energy bills could push a quarter of households into debt.

‘Unfortunately those very circumstances are likely to happen this week as Ofgem announces the increase in the default tariff price cap.

‘People on default tariffs will be directly affected by any increase in the price cap but it is possible to get protection from this market volatility and reduce your bills by switching to a cheaper fixed deal.’

Customers who are worried about their energy bills are encouraged to use price comparison sites to see if they could save money by switching provider or moving to a fixed tariff.