Driven by a record rise in global gas prices over the past six months, with wholesale prices quadrupling in the last year alone, the cap will jump from the current 1,277 pounds to 1,971 pounds per year for about 22 million customers, the country's Office of Gas and Electricity Markets (Ofgem) said in a press release on Thursday.
"Right now, I know the number one issue on people's minds is the rising cost of living," Sunak said in a statement afterwards. "Without government action, this would be incredibly tough for millions of hardworking families."
According to the plan, this year all domestic electricity customers will receive an upfront discount on their bills worth 200 pounds, and energy suppliers will apply the discount on people's bills from October.
The government will also give people a 150-pound Council Tax rebate, paid in April, to help with the cost of energy. This will benefit around 80 percent of all homes in the country.
The actions provide 350 pounds in total, just more than half the cap increase of 693 pounds, and the government will help around 28 million households this year, Sunak said, noting that the plan is worth around 9 billion pounds in total.
Ofgem reviews the cap twice a year, in April and October. In October 2021, the regulator increased the cap for the period between October 2021 and March 2022 by 12 percent, to 1,277 pounds, compared to the previous period.
The cap stops energy companies from making excessive profits and ensures that customers pay no more than a fair price for their energy, Ofgem said on Thursday, adding that it allows energy companies to pass on all reasonable costs to customers, including increases in the cost of buying gas.
Following Sunak's statement, however, the actions have come under fire for they are considered to fall short of what is needed to root out the problem.
"By opting for near-universal support over targeted help for low-income families at the heart of the current cost of living crisis, the number of families in fuel stress is still set to double," said Adam Corlett, principal economist at the Resolution Foundation, an independent think tank.
Caroline Abrahams, charity director at Age UK, a British charity for older people, said the support "simply does not go far enough," noting that it will still leave many of the pensioners facing energy costs surging by an extra several hundred pounds that they cannot afford to pay.
British businesses also expressed disappointment of being left out. "While assistance for households is welcome, businesses will be dismayed at the lack of support for those firms also struggling with their energy bills," said Hannah Essex, co-executive director of the British Chambers of Commerce.
"Smaller firms are particularly exposed as they have neither the protections or financial support provided to households, nor do they have the negotiating power of larger businesses," Essex added.
While the energy crunch has become a global phenomenon this winter, the UK is among the most vulnerable as it is a net importer of natural gas. Amid the price surge, 26 energy suppliers collapsed in 2021.
With a combination of factors, including colder weather, increasing global demand, falling gas supplies and outages of key infrastructure, the crisis is feared to continue. The energy market "suggests that high gas prices will be here for the next 18 months to two years," Chris O'Shea, chief executive of British Gas owner Centrica, told the BBC in January.
To cushion the shock, many solutions are under consideration by the government, like a windfall tax on North Sea oil and gas companies, which have enjoyed a bonanza due to surging gas prices, or a temporary reduction to the five percent value-added tax (VAT) rate on energy bills, which is mainly supported by the Labour Party. Nevertheless, they all face controversies.
In the Thursday statement, Sunak dismissed the idea of tax reduction. The policy, he said, "would disproportionately benefit wealthier households. There would also be no guarantee that suppliers would pass on the discounts to all customers." (1 British pound = 1.36 U.S. dollar)
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