UK Electricity Prices Cap - a deep dive

"Hope is important because it can make the present moment less difficult to bear. If we believe that tomorrow will be better, we can bear a hardship today" -Thich Nhat Hanh

Energy costs have risen significantly in recent months, putting a strain on households’ budgets. There are both advantages and disadvantages to having a price cap. A price cap would benefit those on low incomes who are the most vulnerable and those who would benefit most from an energy price cap because they are the most likely to pay high tariffs and go through financial burdens.

In addition, low-income consumers tend to spend the least, but the standing charge still forms a significant proportion of their overall bill, meaning they pay the highest overall rate for the energy they consume.

The price cap is advantageous because it restricts the rates suppliers can charge for default tariffs, including the standing charge of each kWh of electricity and gas (units your bills are estimated from). However, your total bill will not be capped and will vary depending on the energy used.

The energy price cap can also harm the economy in the long run as the government will have to fill the gap by getting revenue in other forms, such as taxes on income. The government has said that the total cost of this scheme will be known in September, but it has been estimated that the amount could be between £130bn and £150bn. The government plans to pay for this by increasing borrowing and raising money through selling financial products called bonds to global investors- such as pension funds. However, the bonds will need to be paid back, generally after many years, with added interest. This means taxpayers will fail to pay more than the initial amount raised.

According to the Office of National Statistics, 66% of adults in the UK revealed that there had been a rise in their cost of living, with higher energy costs being one of the main contributors. Of the adults who disclosed experiencing an increased cost of living to the Opinions and Lifestyle in January 2022, 79% reported higher gas and electricity bills being the culprits.

My Name is Anjali Kashyap, and I am a Digital Marketer.