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Energy boss blames Ofgem's price cap for causing 'huge price increases'

An energy boss today blamed Ofgem's price cap for causing 'huge price increases' after a charity warned that the average gas bill in the UK will have doubled in 18 months when domestic prices rise next Spring.

The National Energy Action has forecast that the typical gas bill for those on standard tariffs is likely to go up from £466 a year in October 2020 to £944 in April next year, when the cap is expected to be raised amid exploding gas prices across Europe. 

Most households in the UK pay for their gas and electricity together in a dual fuel deal, with those who pay a standard tariff typically protected by Ofgem's price cap. 

The state regulator introduced the cap to delay the impact of surging prices on household bills. The regime was set at its lowest level in October last year when energy prices were low, but has risen twice since then and experienced its biggest ever increase two months ago. 

Energy firms which have collapsed in recent months claim Ofgem's price cap has created an unmanageable market. They claim that the regime has prevented suppliers from passing on the increased costs to customers, leaving them unable to continue. 

Because their customers have been moved onto tariffs with other suppliers in line with the price cap, hundreds of thousands of people on fixed rates who might have expected to be protected from soaring prices will now also be hit by the April cap. 

Lashing out at Ofgem's role during the current crisis, Bill Bullen, the founder and CEO of energy supplier Utilita, told Radio 4's Today programme that 'we can't duck the fact that we're in this situation because of some pretty serious regulatory failures'.

He added that pre-paid customers are seeing meter balances decreasing 'really rapidly' because of the cold snap – meaning that 'with these higher prices it is impacting on consumers that bit more'. 

The biggest company to go bust so far is Bulb, whose 1.7 million households made it one of the top energy suppliers in the country. 

Energy bosses have blamed 'huge price increases' on 'pretty serious regulatory failures' by Ofgem (stock image)

The National Energy Action has forecast that the typical gas bill for those on standard tariffs is likely to go up from £466 a year in October 2020 to £944 in April next year (stock image) 

The collapse of Zog comes amid spiralling wholesale gas prices across Europe, which have squeezed smaller UK energy firms out of the market. Zog is the 25th energy firm to go bust in the last three months

The 25 UK energy firms which have gone bust so far 

'We can't duck the fact that we're in this situation because of some pretty serious regulatory failures,' Mr Bullen said. 

'The price capping regime of itself has led to huge price increases. I think it's actually fair to argue that had we not had a price capping regime, we as a business would have been hedging our business much further forward than we currently do… and that would have actually saved customers a lot of money.

'The regulator's also been very focussed on customer churn and switching between suppliers, and that also has led to customer detriment in the long run because we now have a situation where suppliers who offered really cheap prices are have now gone out of business and we're all having to pick up the tab for that.' 

Adam Scorer, the chief executive of the National Energy Action, said: 'The cost of living in the UK is at its highest level in a decade with household energy bills the biggest driver. When the costs of essential services go up, those on lowest incomes get hit hardest.

'For people already on a budgetary knife-edge, the cost of keeping a family warm has exploded while budgets have collapsed. No amount of useful tips or savvy shopping can cope with that.'

In October, Ofgem chief executive Jonathan Brearley told the BBC that the price cap was there to stop firms making unfair profits, but 'legitimate costs have to be passed through'. He said it was too early to say how much the rise in April would be or whether Ofgem would have to review the price cap more frequently in future.

Wholesale energy prices hit the second highest level in at least three years on November 15, adding yet more pressure to already struggling firms.

Low wind speeds prior to the arrival of Storm Arwen were blamed for pushing wholesale energy prices for the peak period between 5pm and 6pm over £2,000 per megawatt hour. It was only the second time they have surpassed this level since 2018.

Because of these low wind speeds, the UK power grid was forced to turn to gas and coal to power homes and businesses.

But wholesale gas prices have sharply risen in the last few months.

Russia, a major supplier of gas to Europe, has been accused of limiting supplies to put pressure on the EU to approve a new pipeline bypassing Ukraine. The move, experts warn, could have a knock-on impact on Ukraine, which has become an area of tension between Russia and the West.

Wholesale gas prices fell in Europe last month after Russian gas flows resumed to Germany. Moscow has pledged to increase supplies and ease concerns about shortages and high prices before winter.

Russia started pumping gas to Germany again via a pipeline from Yamal in Siberia, a day after a halt in exports had pushed up prices in Europe.

Russia provides a third of Europe's gas and its supply intentions are critical at a time when a surge in spot prices has hit households and businesses alike in Europe, underlining Europe's heavy dependence on Moscow for its energy supplies.

Russian President Vladimir Putin ordered state gas company Gazprom (GAZP.MM) this month to increase supplies to Europe and rebuild its inventories there once domestic storage tanks are replenished.

Moscow has denied withholding supplies to Europe to exert pressure on German regulators to approve gas shipments through the new Nord Stream 2 gas pipeline beneath the Baltic Sea.

Germany has until early January to certify the pipeline.

Ministers were told to make energy bills should be made VAT-free this winter to 'help people through the tough winter months'. 

Wholesale gas prices have sharply risen in the last few months (pictured: A graph showing the rise). Russia, a major supplier of gas to Europe, has been accused of limiting supplies to put pressure on the EU to approve a new pipeline bypassing Ukraine. Moscow has denied the claims. 

The biggest firm to go bust so far is Bulb, whose 1.7 million households made it one of the UK's top suppliers (stock image)

Labour shadow Treasury minister James Murray told the Commons that cutting VAT on bills to 0 per cent would help people through 'low temperatures and high prices' this winter. 

The call came as MPs continued to debate the Finance (No.2) Bill, which enacts measures contained within the Budget.

Mr Murray said Labour would not oppose specific measures in the Bill to ensure businesses selling secondhand cars or dentists in Northern Ireland did not suffer due to differing VAT rates.

But he added: 'We know that VAT more widely has a significant impact on people's lives so I end by repeating our call on the Chancellor to cut VAT to zero for domestic energy bills to help people through the tough winter months of low temperatures and high prices ahead.'

Treasury minister Lucy Frazer had said: 'The UK has implemented the Northern Ireland Protocol in a way that seeks to protect the UK internal market. Today's clauses play a part in achieving this objective by allowing Northern Ireland businesses and consumers to have the same economic opportunities as those in the rest of the UK.'

She also said that an 'exit charge' for VAT-free zones like the planned freeports would 'prevent any abuse of the VAT zero rate' inside them.

Ms Frazer added: 'Freeports are an important part of the Government's levelling up agenda. We see them as central to our goal of sparking regeneration, creating jobs, and inspiring innovation throughout the country.'

Elsewhere in the debate, Labour former minister Dame Margaret Hodge pressed the Government on its plans to tackle financial crime, accusing it of either not understanding or 'downplaying' the need to take action on the issue. 

Proposals in the Finance Bill would see companies which are regulated for anti-money laundering purposes pay a new tax, with the aim of using the money raised to tackle economic crime.

Household bills could soar by £60-a-year to pay for failure of energy supplier Bulb as government covers £1.7billion cost to keep lights on for its customers 

Household bills could rise by as much as £60 to pay for the fallout of energy supplier Bulb as UK gas prices continue to skyrocket over winter.

The company has been placed into administration and the Government vowed to set aside £1.7billion to keep Bulb's 1.7 million customers warm over winter. 

Bulb will be the first company to use the Special Administration Scheme - a contigency system that was designed to temporarily support energy suppliers deemed too big to fail.

Under the rules of of the scheme, Bulb will receive Government money to continue supplying gas and electricity to its customers during the administration period.

The system was devised in 2013, with the intention that the Government would later place the costs back on to the energy suppliers.

This in turn, means the price will be passed on to households through their energy bills.