Why Are My Bill Going Up? The Price Hikes Explained.

Bills are going up everywhere. With the energy price cap rise announced last week and the inflation rate over 5%, customers and households are concerned about why their bills are reaching new heights. Here we lay out where prices are rising, what’s causing them and what help there is available.

Energy Price Cap Raised

Last week, the energy regulator Ofgem decided to raise the energy price cap by £693 a year for customers on default or variable tariffs. 

The price cap - a mechanism brought in to protect customers from dramatic price rises by suppliers - will increase by 54% from 1 April 2022. This will affect both direct debit and prepayment customers on non-fixed tariff who will see an increase in their annual bill.

The above prices are yearly averages based on a household that uses 2,900kWh of electricity and 12,000kWh of gas each year. This means that you might use more or less than this in a given year and you will still pay for what you use. These prices are just to show where the price cap limits energy rates on average. 

Why is Ofgem Raising the Price Cap?

Over the last six months, the UK has been experiencing an energy crisis due to the rising price of wholesale gas. This has meant higher costs for energy suppliers who have been forced to take on all the strain due to the price cap. The price cap prevents suppliers from charging more to cover the rising cost and as a result they have gone bust.

How Has This Affected Suppliers?

As of January 2022, 28 energy suppliers have now closed their doors, including big names such as Bulb Energy and Avro Energy. The latest victim was Together Energy that went bust last month.

These closures have meant that other larger suppliers have had to absorb the defunct companies’ customer bases through the Supplier of Last Resort (SoLR) programme via Ofgem. This has put extra pressure on more solvent suppliers who have stopped offering new tariffs and has even seen suppliers refuse to onboard new customers.

Will Raising the Price Cap Help?

Raising the price cap will mean energy suppliers will be able to offer fixed tariffs again since they will be able to charge more to help cover their costs. This will allow for greater choice for customers who will be able to switch energy companies once again.

Ofgem is also looking into more measures to help combat the crisis with its new Action Plan for 2022.

What energy help will be offered? The government has already announced that it will offer a £200 discount off of everyone’s annual energy bill that will apply in October 2022. This discount will be paid back by customers over the course of 5 years starting from 2024.

Councils will issue a Council Tax Rebate of £150 to households in Tax Bands A to D. This will not be repaid.

The government is also raising the Warm Home Discount scheme to £150 and has widened the criteria to include more vulnerable households.

There are also other government-backed schemes to help with your energy costs, find out which ones you are eligible for and how to apply in our energy grants and schemes guide.

Broadband Price Hikes

Broadband companies have also been struggling due to the rise in costs for their operations and due to rise in inflation. BT announced at the end of January 2022 that it was set to raise its broadband rates by 9.3%.

Why Is Broadband Going Up?

Broadband companies usually raise their prices every year to keep up with inflation. Due to the pandemic and inflation hitting a 40 year high, broadband companies have had to raise their prices to compensate for the rising costs. Since inflation is currently at 5.4%, the annual price rises are going to be significantly higher than usual. 

Mid-Contract Rises

These broadband price rises have been controversial because they affect even those customers who are within their fixed contracts. Contracts from BT, TalkTalk and other larger providers have clauses that permit these companies to raise prices to keep up with inflation.

Under Ofcom’s regulations, customers are usually protected against unexpected broadband price rises if they are higher than the rate of inflation. If this is the case, a customer can leave their contract without paying an exit fee. However, since these rises are in line with inflation, these are within Ofcom’s rules.

The exception is the Virgin Media price rise who are allowing customers cancel without a paying an early extra fee. Virgin Media do not include a yearly price rise in their contracts so they have given customers until the 15 February 2022 to either cancel or switch providers.

Which Companies Are Hiking Prices?

The majority of the larger providers are hiking their broadband prices by an average of 9%. Here is a table detailing the rises of each individual company:

Source: Which

What Else Is Included in the Price Hike?

Broadband companies are also including a smaller percentage rise on top of the 5.4% for inflation in order to cover business and operational costs. For BT customers this includes a 3.9% rise, for TalkTalk this is 3.7%.

Which Broadband Providers Are Not Hiking Prices?

There are some providers who have not announced any price changes such as Pop Telecom and Direct Save, and KCOM - a provider for the Yorkshire and Lincolnshire area - have cancelled their annual price rises.

What broadband help will be offered? At the moment, if you are a vulnerable customer, you will continue to receive the same support that has been on offer before. Those customers on benefits or receiving other support that qualifies you as a vulnerable customer will be able to ask for a reduction on their bill.

If you are a BT customer using BT Home Essentials, you will not see a rise in your broadband prices after the end of March.

Water Prices Going Up

Water suppliers are also set to increase water bills at the end of March by 1.7% in England and Wales according to Water UK. This increase will see the average UK water bill rising from £408 to around £419. This is on average an extra £7 a year.

Will Water Price Rise Any Higher?

The water regulator Ofwat usually reviews the industry’s prices every 5 years in a Price Review. The last major Price Review happened in 2019 meaning that the next one won’t be held until 2024. For the moment, water prices will only rise a little in order to keep up with the exceptional circumstances of current inflation but they are unlikely to rise any more.

What water bill support will be offered? The Water Sure Scheme is offered to vulnerable customers who are receiving government support and have a qualifying medical condition that requires them to use more water than average.

Individual water companies also have their own support schemes. We have made a list of all the schemes on our Water Bill Help guide.

Rent Increases

Rents rose by 8.3% by the end of 2021 to an average of £969 which is the fastest increase for 13 years. These rent increases have been due to a number of demand factors that have influenced the price.

Due to regulation changes, there are many landlords who are taking properties off the market and there has been a surge in demand for properties as foreign travel restrictions have softened and as students return to their university accommodation.

What rent help will be offered? Renters who are earning less than £16,000 a year can apply for Universal Credit to help with their rent costs. As of yet, there are no specific programmes that have been announced to help with rent.

When Will Prices Start to Fall?

As a result of the COVID-19 pandemic, prices have been rising due mainly to supply chain issues. Since most of the world was in lockdown in 2020 and even through into 2021, supply chains faced difficulties owing to the social distancing restrictions put in place internationally and workers being forced to self-isolate.

When there is a dramatic fall in supply compared to demand, this is called a supply shock meaning that even though the people needing certain goods doesn’t decrease, the actual amount of those goods dries up.

Most economists judge that high prices will be with us for a little while now as supply chains need to recuperate. For energy in particular, prices aren’t due to fall until 2024. However it is still unknown how long high prices will persist for.