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British household energy bills are set to rise by 0.2 per cent in January as levies on bills to pay for system upgrades outweigh a slight fall in wholesale prices, raising questions for the government, which has pledged to bring bills down.
Ofgem, Britain’s energy regulator, has set the price cap — a limit on how much companies can charge consumers per unit of gas and electricity — for the January to March period at a level that would see typical households pay £1,758 per year, compared with the current £1,755.
Analysts at Cornwall Insights calculated that the UK’s new Nuclear Regulated Asset Base (RAB) levy would add about £10 to bills from January, and other charges would add around £20.50.
The price cap was introduced in 2019 under the then Conservative government and covers accounts on standard variable tariffs, currently about 62 per cent of the total.
Energy bills are an acute issue for the Labour government, which pledged during the general election campaign to bring them down by up to £300 by 2030.
Bills have eased since the energy crisis of 2021-23, triggered by a surge in wholesale gas prices, but are still hundreds of pounds higher than pre-crisis levels.
Cornwall Insights also expects the cap to rise further in April, by about £57 from January levels, due to factors including higher charges for costs such as investments to upgrade the electricity network.
Many analysts believe the government will struggle to bring them down due to the costs of upgrading and maintaining electricity and gas networks, building new power stations and keeping gas-fired power plants on standby.
In an effort to cut costs, the chancellor is drawing up plans to cut VAT from energy bills in next week’s Budget, which would cut bills by around £80 per year. She may also reduce some levies to help fund energy efficiency upgrades in the homes of those on lower incomes.
Analysts at Cornwall Insight said: “Although wholesale energy prices have fallen slightly compared to the previous quarter, increases in non-wholesale costs, such as the Nuclear Regulated Asset Base (RAB) levy and other adjustments introduced by Ofgem, have limited the overall change in bills.
“This marks the beginning of a potential trend in which non-energy costs could emerge as the primary driver of household energy bills, rather than the wholesale market — which has historically provided much of the direction of and volatility in overall cost.”
