Energy firms have been given permission to make an additional £45 million in profit at the expense of cash-strapped households. Watchdog Ofgem has increased the amount of pure profit that can be added to energy bills. Small print in Ofgem’s latest energy price cap announcement shows that the figure has risen to £44 for the average household paying by direct debit, amounting to a massive £1.276 billion in total.

The Ofgem price cap is the maximum amount that energy suppliers can charge households on a standard variable tariff and includes a figure called the Earnings Before Interest and Tax allowance (EBIT), which covers profit margins. The new price cap comes into force today, with average bills rising by £3 to £1,758. This is up from £1,568 at the time of the general election in 2024.

Simon Francis, coordinator of the End Fuel Poverty Coalition, said: “To see supplier profit allowances rising faster than the overall Ofgem price cap only adds to the pressure on households and doesn’t seem fair.

“At a time when the entire energy industry has generated more than £125bn in UK profits since 2020, every penny added to bills must be justified and transparent.

“We need action to bring down prices, not excuses.”

Households have been cutting spending as the cost of living crisis continues and gloomy economic news adds to uncertainty.

Barclays reported spending on cards was down compared to previous years in the run-up to Christmas, while a survey by KPMG found two-thirds of households believe spending is going backwards.

The official inflation rate is 3.2% but prices of food items including chocolate, butter and eggs have risen much faster.

Further changes to the energy price cap could come into force in three months, with some experts predicting costs may start to fall.

Regulation expert Richard Winstone said: “I was surprised to see Ofgem’s announcement that the price cap would be increasing in January 2026, but I’m even more shocked that 50% of this increase is going directly to supplier profits.

“As the price cap has barely changed, I would have expected that the profit allowance would remain the same. To increase energy bills in the depths of Winter and to tell consumers that 50% of the increase is simply to give suppliers an additional £45 million in profits is an outrageous and indefensible decision by Ofgem.”