Rising Household Energy Costs and Consumer Protection

On 3 February 2022, the House of Lords is due to debate a motion moved by Lord Whitty (Labour) that “the Grand Committee takes note of the cost of living, and in particular (1) the rising cost of household energy, and (2) the role of the consumer protection regulatory regime in energy markets”.

In December 2021, the inflation rate (as measured by the consumer prices index) reached its highest level since the 1990s. The Bank of England expects inflation to peak at around 6% in April 2022, predominantly accounted for by the impact of rising wholesale gas prices on utility bills. Wholesale UK gas market prices hit an all-time high in December 2021, following previous high prices in October 2021. A combination of factors is responsible for the price rise, including colder weather, increasing global demand, falling gas supplies from Russia, and outages and maintenance of key infrastructure.

The energy regulator Ofgem is due to announce in February 2022 what the default tariff cap will be for April to September 2022. As the price cap will factor in wholesale prices over the previous six months, it is expected that the cap will rise. Some estimates suggest the amount paid by the typical customer could nearly double. Since August 2021, 27 energy suppliers have gone out of business. Some have blamed the effect of the price cap, arguing it meant they were supplying energy at a loss. It is estimated that the costs of supplier failures could add an extra £80 to £120 to every household energy bill. Rising bills could lead to an increase in the number of households in fuel poverty. Organisations such as the Resolution Foundation and Age UK have predicted the effects will particularly impact lower income and older households.

The main objective of Ofgem’s governing body is to protect the interests of existing and future consumers of gas and electricity. Ofgem has been taking actions, including in conjunction with the trade body Energy UK, to address the needs of vulnerable customers. However, it has faced criticism for not doing enough to protect them. Citizens Advice published a report in December 2021 arguing that Ofgem had failed to act against energy suppliers, leaving the market vulnerable to the spike in wholesale prices. Ofgem announced a package of measures in December 2021 intended to increase the financial resilience of retail energy suppliers. It is also considering a range of proposals for changing the way the price cap mechanism works, especially in times of market volatility.

The Government says that consumers are supported through the price cap mechanism, and a range of support is available for vulnerable customers, such as the warm home discount, the winter fuel payment, cold weather payments and a new household support fund. The Government is intending to refresh its Energy Retail Market Strategy for the 2020s to take account of lessons from recent market developments, including possible changes to the energy price cap.