By Susanna Twidale
LONDON - Britain's cap on domestic energy prices is expected to rise by 70% in October and remain high until at least 2024, analysts warned on Tuesday, ramping up pressure on politicians vying to become the country's prime minister.
The forecast comes as former finance minister Rishi Sunak and foreign secretary Liz Truss battle to become Britain's next leader, with calls for both candidates to expand on how they plan to address soaring inflation and a cost-of-living squeeze.
Based on latest wholesale energy prices, the cap on the most widely used household energy contracts is projected to rise by about 70% at the next change in October, taking average annual household dual-fuel bills - covering both gas and electricity - to more than 3,359 pounds ($4,103), said analysts at Cornwall Insights.
A review of support for the next price cap periods should be top of the to-do list for any incoming prime minister, said Craig Lowrey, principal consultant at Cornwall Insight
The cap is expected to rise again in January, to 3,616 pounds a year, and remain above 3,000 pounds a year until at least 2024, Cornwall Insight said.
The End Fuel Poverty Coalition campaign group warned that millions of people will face a two-phase cost-of-living crisis this winter if those projections prove accurate.
Last May Sunak set out a 15 billion pound package of support for houesholds, saying that each home would receive a 400 pound energy bill credit for when the price cap rises in October, but that was when the forecast price rise was much lower.
"Our new figures show that even increasing support for October will not make much of a dent in what is likely to be a sustained period of high energy bills," said Cornwall Insight's Lowrey.
Either Sunak or Truss will be named the new prime minister on Sept. 5, giving the winner time to announce new support measures before the higher bills arrive in October.
Sunak has said he would temporarily scrap value-added tax (VAT) on energy bills if he becomes leader. VAT on domestic energy bills is currently charged at 5%.
Truss, meanwhile, has said she would halt green levies on bills, which would reduce bills by less than 8%.
Ofgem sets the price cap using a formula that includes suppliers' network costs and environmental and social levies, with wholesale energy prices the largest factor, accounting for more than half of the April cap level.
GRAPHIC: What makes up Ofgem's price cap? (https://fingfx.thomsonreuters.com/gfx/ce/akvezkgampr/Pasted%20image%201659430951376.png)
British wholesale gas prices hit record highs after Russia's Feb. 24 invasion of Ukraine and have remained elevated despite falling back from their peak level.
Britain receives about 4% of its gas from Russia, but lower overall Russian supply to Europe means competition for gas is intense, pushing prices higher.
($1 = 0.8197 pounds)