Will the rise in gas and electricity bills harm the government?

The rise in energy prices is likely to hit struggling families hardest, increasing pressure on the chancellor to reconsider his plan to scrap the universal credit uplift, says Andrew Grice

Johnson and Sunak on a visit to the headquarters of Octopus Energy in October 2020 (Getty)

A typical gas and electricity customer is likely to see their bill increase by £139 to £1,277 a year in October. Although the decision to lift the price cap was taken by the energy regulator Ofgem due to higher global wholesale prices, it could become a hot political potato.

The 12 per cent rise will affect about 11 million households in England, Wales and Scotland who have never switched supplier or whose discounted deals have expired. Another 4 million with prepayment meters will see an increase of 13 per cent, or £153 a year.

This represents the biggest rise since the cap’s introduction three years ago, showing that it is not much of a cap at all. It is the second increase this year: in April, a typical bill went up by £96 a year.

The latest rise will take effect not only at the start of winter but at a politically sensitive moment. The furlough scheme will come to an end at the same time, which could push an estimated 150,000 people into unemployment.

October is also when 5 million families on universal credit are due to lose the £20-a-week top-up introduced by Rishi Sunak last year to help them through the coronavirus pandemic. The higher energy bills will increase the pressure on the chancellor to think again.

There is a growing Tory backbench rebellion against the move, and Labour intends to force a Commons vote when MPs return from their summer break next month. At the very least, ministers might be forced to announce more help with energy bills for low-income families, for example by expanding the Warm Home discount scheme.

This is not the first time energy prices have become a political issue. Ed Miliband, the then Labour leader, was derided by the Tories and some in his own party for proposing a price freeze in 2013, but Theresa May’s government would later copy it.

Although ministers believe Ofgem had little alternative but to raise prices, it is the government that sets the rules under which the regulator operates. John Penrose, a Tory MP who proposed the cap, admits it is “not really” working in the way it was originally intended to, which was to stop energy companies penalising loyal customers who do not switch suppliers.

The increase is bound to fuel demands for the energy companies to follow the insurance market, where firms can no longer charge customers renewing their policy a higher price than new customers. There could also be pressure to make the price cap, set twice a year by the regulator, more flexible: if global prices fall, consumers are slow to reap the benefit.

Although the Bank of England expects the rise in inflation – currently at 2.4 per cent – to be short-lived, Tory MPs fear the cost of living will move up the political agenda this autumn. In the 1960s and 1970s, it was a dominant issue. But there will be no return to the state control seen when Labour set up the National Board for Prices and Incomes in 1965, which later became the Price Commission under the Tories.

The higher energy bills could have a sting in the tail for Boris Johnson, making it even more difficult to persuade the public to help the UK achieve “net zero” greenhouse gas emissions by 2050 by meeting the cost of new heat pumps or hydrogen boilers when traditional gas boilers are phased out.