• Electricity and gas prices will rise in January.
• But, homeowners will be protected.
• Households will be safeguarded by the government’s energy price guarantee.

Electricity and gas prices will rise in January, but homeowners will be protected.

Ofgem, the energy regulator, upped its cap for the first three months of 2019 to 67 pence per kilowatt hour (p/kWh) for electricity and 17 pence p/kWh for gas.

Households will be safeguarded by the government’s energy price guarantee.

The guarantee, introduced on 1 October, limits how much a typical household pays for wholesale energy at £2,500.

This government cap is in force until April next year, when it’s hiked to £3,000.

Ofgem’s announcement today may not seem important because households won’t pay the hike.

The energy price guarantee is a government subsidy, thus taxpayers will indirectly pay for it. Massive cost.

Together with a comparable, less generous scheme for commercial customers, the package may cost £38bn over 18 months, according to the Institute for Fiscal Studies.

The actual cost relies on wholesale energy costs, making estimates impractical (fortunately for the government these have been coming down in recent months).

This is half of the £100bn spent on vacation support and self-employed income support during the pandemic.

The cost would have been £55bn if the government hadn’t decided to taper the funding next April. Liz Truss’s government planned to keep the funding at £2,500 for 2 years.

Economists fear people could pay through increased inflation.

Some folks need the government’s untargeted aid more than others. The stimulus plan comes as inflation hits a 41-year high.

The Paris-based OECD cautioned last week that the support will “raise short-term inflation pressures.”

This will drive the Bank of England to hike interest rates, raising economic borrowing costs.

Not just Britain. The OECD said France and Germany face comparable problems.

While the Ofgem price cap rise may not hit households immediately, we’ll all pay for it.

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