Andy Burnham’s VAT cut will be swallowed up by price cap rises, the latest estimates show (Image: Getty)
Households face an estimated £1,906 bill for their gas and electricity from October 1, despite a six month VAT cut on electricity that gives £45 back on bills.
The latest estimates from analytics firm Cornwall Insight has set out what it thinks the next Ofgem price cap will be, based on current market wholesale rates.
To reduce cost-of-living pressures, new Prime Minister Andy Burnham this week announced a cut to VAT on electricity bills, which is expected to take off £45 from a typical home’s annual bill under Ofgem’s current price cap.
“I said I wanted to give people breathing space, and that’s what I’m announcing on my second day as Prime Minister,” Mr Burnham said.
But as the PM’s tax cut comes into effect, the price cap is forecast by experts to rise by 2% in October from £1,862 to £1,906 a year, largely driven by continuing instability in the Middle East.
Energy bills are set to increase despite the VAT cut (Image: Getty)
The new price cap will place further pressure on household finances as families switch their heating back on in autumn.
Cornwall Insight’s estimated figure of £1,906 already includes the £45 handed back to households by new Prime Minister Andy Burnham’s cut on VAT for electricity bills, Cornwall Insight says.
The estimate is for households in England, Wales and Scotland. Due to Brexit agreement rules, Northern Ireland does not benefit from the VAT cut on energy bills. As a result of the Brexit agreement and European Union VAT rules, the Northern Ireland Executive will instead receive funding for cost-of-living support.
If energy regulator Ofgem did set the cap at £1,906, it would represent an increase on the current cap’s £1,862 figure of about £44.
The price cap figure is an estimate based on a household’s typical use, and represents the average amount a typical use household would pay based on the sum of the unit rates and standing charges in the period, for those not on a fixed deal but staying on the standard variable tariff for gas and electricity.
The cap is affected by the cost of wholesale gas, and when wholesale prices rise, such as during the recent conflict in the Middle East, and a few years ago, during the Russian invasion of Ukraine sparking global instability, the increase in rates then has a knock-on effect on bills.
Ofgem will announce the final confirmed figures for the next price cap towards the end of August.
Santander UK on Wednesday revealed it has reached out to almost 150,000 customers it expects to be most severely affected by soaring energy costs amid the fallout from the Iran war.
The high street lending giant said it identified 146,000 vulnerable customers who are likely to be spending more than 10% of their monthly income on energy payments following the increase to the energy price cap in July.