Millions of homes face higher energy bills as Ofgem price cap rises to £1,738 a year
- No relief for households as the cost of gas and electricity continues to increase
Millions of homeowners will pay more for energy bills from January, after regulator Ofgem announced its price cap will rise to £1,738 a year.
The price cap, currently £1,717 a year for average energy use, will increase by 1.2 per cent to £1,738 on 1 January 2025.
It means the typical home will pay an extra £21 a year for energy, until the price cap is reset again in April 2025.
The January rise follows Ofgem's last hike in October 2024, when the price cap increased from £1,568 to £1,717.
The price cap limits the maximum amount an energy firm can charge for the units of gas and electricity households use, as well as daily standing charges.
Most homes in the UK are on price-capped energy deals, though the exact amount each household pays varies depending on gas and electricity use.
Here is how much you will pay for gas and electricity from 1 January 2025 depending on how you pay your energy bills.
Electricity rates
If you are on a standard variable tariff (default tariff) and pay for electricity by direct debit, you will pay on average 24.86p per kilowatt hour (kWh) compared to 24.5p today.
The daily standing charge will fall to 60.97p per day, down from 60.99p. This is based on the average across England, Scotland and Wales, and includes VAT.
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Gas rates
If you are on a standard variable tariff (default tariff) and pay for your gas by direct debit, you will pay on average 6.34p per kilowatt hour (kWh) compared to 6.24p per hour today.
The daily standard charge will be 31.65p per day, a slight drop from 31.66p today. This is based on the average across England, Scotland and Wales, and includes VAT.
Why is the price cap so important?
The price cap was brought in during January 2019 to stop energy firms overcharging customers on variable-rate tariffs.
Most households had fixed-rate energy deals at the time, and only moved onto variable-rate tariffs if they did not renew at the end of their term.
But after energy bills began rising in late 2021, gas and electricity companies responded by pulling all new fixed-rate deals from the market.
They did this to try to avoid to the collapse that befell many energy firms, which were suddenly forced to sell power for far less than it cost them to buy it.
Because cheap fixed-rate deals had almost disappeared, almost all homes ended up on variable tariffs regulated by the Ofgem price cap.
Some cheaper energy deals have been launched that undercut the price cap, both now and when the new one kicks in on 1 January.
Tim Jarvis, director general of markets at Ofgem, said: 'While today’s change means the cap has remained relatively stable, we understand that the cost of energy remains a challenge for too many households.
'However, with more tariffs coming into the market, there are ways for customers to bring their bill down so please shop around and look at all the options.'
But higher energy bills have been criticised by charities for the elderly, who say they are the latest blow to pensioners this winter.
Millions of pensioners are losing Winter Fuel Payment benefits worth up to £300 each this winter after the Government ruled these should only go to those on benefits like Pension Credit.
Age UK charity director Caroline Abrahams said: 'Older people, struggling without their Winter Fuel Payment, who were praying for a reduction in energy prices to help them in the New Year, will be bitterly disappointed today.
'The news that the energy price cap is instead slightly rising is the latest in a series of blows for pensioners living on a low or modest income, who do not receive Pension Credit because they don't claim it or are not eligible.'
What is the future of the price cap?
The price cap is reset in April, July and October.
Cornwall Insight thinks the average gas and electricity bill will fall later in 2025.
A Cornwall Insight spokesperson said: 'Given the price cap rise in October, many will have been hoping to see a fall in the cap for January. Unfortunately, forecasts show that prices will be staying relatively high for the remainder of winter.
'Looking further ahead, we currently forecast the cap will drop slightly in April 2025 and again in October 2025.'
