Households will face a record energy bill increase of 54% from April after the regulator lifted the cap on default tariffs to £1,971.
The energy regulator, Ofgem, lifted the maximum rate that suppliers can charge for an average dual-fuel energy tariff by £693, to reflect the fourfold increase in energy market prices over the last year.
The hike means that 22 million households which pay by direct debit will face an average of bill of £1,971 a year for their gas and electricity. Homes using a pre-pay meter, which are typically more vulnerable, will on average face a steeper hike of £708 and an annual bill of £2,017.
Jonathan Brearley, the chief executive of Ofgem, said: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.”
The second major increase in energy bills in six months, and the largest on record, is expected to drive millions of households into fuel poverty for the first time.
The blow to household finances has prompted the Treasury to offer households a one-off £200 discount on their energy bills this October, which they would be required to pay back in instalments of £40 a year over the next five years.
The discount has been offered alongside a £150 rebate on council tax bills from April as part of a £9bn package from the Treasury designed to “take the sting” out the cost of living crisis.
“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas,” Brearley added.
The price cap increase is calculated by Ofgem based on the costs faced by suppliers, including buying energy from the wholesale market and levies for maintaining energy network infrastructure and renewable energy projects.
The regulator raised the cap to £1,277 last autumn after the UK’s gas market reached a record high in September. Experts have warned that an even greater energy bill hike, to an average of around £2,300 a year, could take effect from October this year after the global gas supply crunch fuelled further energy wholesale price spikes in recent months.
Brearley said the regulator was “working to stabilise the market” through a series of proposals to make sure energy suppliers are more financially resilient to major market shocks which it plans to set out on Friday.