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Why are UK household energy bills so high? Merseyside ARMs Vice Chair Derek Mellor takes a look at recent history.
The invasion of Ukraine by Russia on 24 February 2022 triggered significant fluctuations in global gas prices, primarily due to the disruption of oil and natural gas supplies from Russia, one of the world's largest producers.
Gas prices surged sharply by March 2022 increasing by more than 40% compared to pre-invasion levels. This spike was driven by fears of supply shortages and geopolitical instability.
As sanctions were imposed on Russia, the uncertainty surrounding energy markets intensified and prices fluctuated throughout 2022 and into 2023 peaking in June 2022 before gradually declining as nations sought alternative energy sources and increased domestic production. By late 2023, prices stabilised but remained above pre-war levels.
The impact on domestic energy costs has been profound as, in addition to household gas usage, much of our electricity in the UK is produced by gas-fired power stations. Households faced rising utility bills as energy suppliers hiked their rates to reflect the increased costs of natural gas and oil and maintain their profit margins. Inflation also surged to the highest annual rate since 1981 contributing to broader economic issues including a cost of living crisis in the UK as industries reliant on energy saw increased operational costs leading to higher prices for goods and services.
The situation spurred a renewed focus on energy independence and the transition to renewable energy sources as governments and consumers sought ways to mitigate the effects of volatile fossil fuel markets.
The UK domestic energy price cap, based on the amount of energy used by the “typical” domestic household, has experienced significant fluctuations since the Russian invasion. The price cap, set by Ofgem, rose dramatically in October 2022 to £3,549. This marked a 54% increase from the previous cap.
In response to the ongoing crisis and government interventions, including the Energy Price Guarantee introduced in September 2022, the cap temporarily stabilised and in April 2023 it fell to £2,074. Despite this reduction prices remain significantly higher than pre-invasion levels with the cap having again risen in October 2024 and January 2025.
It is currently set at £1738 per year for a typical household that uses both electricity and gas and pays by Direct Debit compared to £1277 in January 2022. It currently stands at £1851 per year if paid by cash, cheque, or quarterly Direct Debit.
The profits of the Big Six UK energy suppliers have seen significant increases since 2022. As examples, British Gas profits increased to £751 million in 2023, a dramatic rise from £72 million the previous year, and SSE recorded the largest energy generation profits among the Big Six, totalling nearly £670 million.
Collectively UK energy suppliers have amassed over £420 billion in profits since the onset of the energy crisis begging the question what contribution have shareholders and energy company bosses made to minimising the impact on ordinary people, particularly those on fixed incomes, many of whom have been cast into fuel poverty.
According to the End Fuel Poverty Coalition, “fuel poverty” is “the condition by which a household is unable to afford to heat or cool their home to an adequate temperature. It is caused by low income, high fuel prices, poor energy efficiency, unaffordable housing prices and poor quality private rental housing.”
Given the massive surge in energy company profits during a time when people have had to find ways to reduce their energy use, sometimes by having to choose between heating and eating, Merseyside ARMs members would be forgiven for wondering how profits have climbed to such extraordinary levels.
The current government has gone to great lengths to trumpet the creation of GB Energy but it is hard to see what this will do to help ordinary people that full nationalisation of the industry would not achieve.
January 2025
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