This will see the government spending up to £5bn a month on subsidies to billpayers from January as it is obliged to keep bills for the average household under £2,500, rising to £3,000 in April.
The price cap sets a maximum that suppliers can charge per unit of energy to someone on a dual-fuel tariff for both gas and electricity prices.
It was a measure introduced under Theresa May’s government, with the goal of preventing excess profiteering by the electricity companies, particularly in times of crisis.
It used to be adjusted biannually to reflect movements in the wholesale price of energy and prevent energy companies from trading at a loss. Following a raft of energy firm collapses last year in the wake of soaring wholesale costs, Ofgem moved to quarterly updates of the cap.
Cornwall Insight, an energy research firm, said the increase may cause concern for the government as it will be forced to “shoulder the billions of pounds needed to compensate suppliers...