Millions of households will see their energy bills rise to a typical £1,971 a year – prompting Rishi Sunak to announce a £350 package of help.

The 54% increase announced by regulator Ofgem, which will on average see bills for customers paying by direct debit with default variable gas and electricity tariffs rise by £693, will take effect in April and follows a 12% rise in October.

Those using prepayment meters – around 4.5 million customers – will see a typical increase of £708 to £2,017.

Sunak gives statement on bill help for households – follow live

In all, 22 million households are covered by the hikes.

Immediately after the announcement, chancellor Rishi Sunak responded by announcing a plan to ease the pressure on households with £350 of support including £200 off energy bills – to be repaid over five years from next year – and a £150 council tax discount.

Surging wholesale gas prices – currently about four times higher than at the same time last year – have driven the increase.

Energy price cap news – live: Average energy bills to rise 54% – as Sunak gives statement

Energy price cap rises: Sunak announces £350 of support to help pay bills

Energy crisis: What is the price cap and why will bills rise so sharply?

Ofgem said it would tomorrow announce new measures “to help the energy market weather future volatility” including enabling the regulator to adjust the price cap more frequently than every six months “in exceptional circumstances” to ensure that it “still reflects the true cost of supplying energy”.

The price cap hike adds to a cost of living squeeze for households who are also facing higher shop prices, an increase in national insurance, and rising interest rates.

Among those affected by the price cap hike will be former customers of the 29 energy suppliers that have collapsed in the wake of the wholesale gas price surge, affecting a total 4.3 million domestic users.

Ofgem chief executive Jonathan Brearley 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.

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“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.

“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”

What is the energy price cap?

The energy price cap sets the maximum figure that can be charged to customers on a variable dual-fuel rate for typical usage of gas and electricity for a six-month period.

Introduced in 2019 it is based on a number of factors including the wholesale cost of power in the previous six months.

The price cap is not the maximum that anyone can be charged – customers with high energy usage will have higher bills – but rather reflects typical usage levels.

At £693 the energy price cap increase announced by Ofgem is every bit as bad as feared, and worse is yet to come.

The regulator’s calculation, based in part on soaring gas prices over the last six months, is at the upper end of analyst’s predictions and will take the maximum annual dual-fuel bill for “typical use” to £1,971 from April 1.

That’s 54% more than the price cap that was applied in October, and a remarkable 184% up on the rate of £1,024 that applied until last April.

The impact will be felt by all but the most affluent households and acutely by the least well-off. It’s estimated that another two million households will now be forced into fuel stress – defined as those spending more than 10% of their budget on fuel – taking the total to more than six million.

Even families on median incomes will notice an extra £50 a month on their budgets and for some it will be more – the price cap is not the maximum that can be charged to higher users, only a cap on “typical” consumption.

It is the sort or fundamental change to the cost of living that would beg a substantial response from government, even were it not about to add £600 to average tax bills on top of an imminent rise in interest rates and with inflation running at more than 5%.

Chancellor Rishi Sunak has responded with billions of pounds of state-backed loans to deliver a £200 rebate, but it will not be the last time he and the Prime Minister face pressure over this issue.

The wholesale price cap reflects prices over the previous six months and with wholesale gas markets currently settled at levels four times higher than historic norms, another increase, perhaps as high as £2,400, looms in October.

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