UK energy secretary says looking at what more we can do as typical annual bill rises to £1,723 from October – business live

Oil prices have dropped around 3% today, with Brent crude falling to just over $86 a barrel (compared with $72.80 before the US and Israel started the six-month war with air strikes on Tehran on 28 February).

Traders have been cheered by news that Iran has held new talks with its neighbour Oman on how to manage the strait of Hormuz, the key shipping passage that has become a major bargaining chip in the conflict, with Iran's effective closure of the waterway and the wrangling over its reopening and potential transit fees.

Oman's foreign minister said he is hopeful that a temporary corridor through the strait can be announced soon.

The Guardian's diplomatic editor Patrick Wintour has looked at the internal debate in Iran.

Is the strait of Hormuz, recently cited by the office of the Iranian supreme leader as “the pillar of Iran's new security orderâ€, and as transformative as possessing a nuclear weapon, in reality becoming a fast-diminishing asset, leaving Iran increasingly vulnerable to the new planned US wave of economic sanctions?

It is the key debate that is raging inside Iran, with many different conclusions being drawn for Tehran's negotiating strategy. Those who warn the strait's value as a chokehold on the world economy will erode, leaving the country without foreign exchange reserves, argue that Iran's negotiators should seek a deal soon.

One analysis written by Hamid Paktinat, the founder of the Forum of Economic Activists, suggests the construction of alternative pipelines and export routes by Iran's Gulf neighbours will halve the strait's strategic value within three years.

Jess Ralston, head of energy at the Energy and Climate Intelligence Unit, said more investment in renewables is needed to lower Britain's reliance on the international gas market, to keep household energy bills lower.

Andy Burnham has said rising energy bills are “difficult†for people after Ofgem raised its price cap by 4% to a three-year high and analysts forecast a further 9% hike from January.

Speaking to reporters from a supermarket in London, the prime minister said:

It's difficult for people and I recognise that.

But it's why, within days of taking office, I announced that we would remove VAT off electricity bills to give people that little bit of help.

That kicks in from October.

We know the price cap will have an impact, but it is what we can do right now.

We'll continue to look as we go forward at how we get energy prices down in the long term, and that's what we need to do too.

While Britons' energy household bills are to rise by almost 4% to an average £1,723 a year from October, market prices are falling.

Crude oil, as measured by the global benchmark Brent is down 3%, or $2.66, to $85.92 a barrel, the third day oil prices have fallen. Traders shrugged off the threat of heavy US sanctions, with US Treasury secretary Scott Bessent warning of an “economic D-day†for Iran on Monday – but sanctions have not been imposed yet.

There are hopes that the strait of Hormuz could reopen soon after the number of ships transiting dwindled to just two vessels on Monday and five on Tuesday. Iran said it had reopened talks with Oman about how to manage shipping through the waterway.

Trading volumes also tend to be thinner in August when many people are on holiday, so any moves in the oil market have a larger impact on prices.

AJ Bell investment director Russ Mould said:

Markets have adopted a similar pattern over the last six months as investors have responded to the latest mood music from the Middle East.

Discussions between Iran and Oman over the establishment of a temporary corridor through the Strait of Hormuz, US sanctions on Tehran which were less strict than expected, and hints at continuing diplomatic efforts have helped bring Brent crude oil down to [below] $86 per barrel.

This has helped take the edge off market fears about inflation and brought government bond yields down. The improving picture helped fuel a recovery in Asian stocks and saw a steady open in Europe, with the FTSE 100 back within sight of the all-time highs achieved at the end of last month.

The UK's FTSE 100 index was flat at 10,882 after rising to 10,896.42 earlier in the session. Germany's Dax was also flat while the French, Italian and Spanish markets eked out small gains between 0.2% and 0.45%.

Another Ofgem energy price cap day, another increase in bills. Miatta Fahnbulleh, the new energy secretary, can blame the usual culprit on Wednesday – the fossil fuel price “rollercoasterâ€, given a shove this time by Donald Trump's Middle East misadventure. Higher gas prices will indeed be the main quarter-on-quarter reason why bills stand at a three-year high on a unit basis, writes our financial editor Nils Pratley.

But there is more to the tale on a longer view. Even when the gas rollercoaster dips downwards, the energy industry's medium-term projections suggest bills will not fall meaningfully.

Look at the forecast on Tuesday from EDF, one of the big retail suppliers, assuming “some moderation†in wholesale prices. Top line: “Bills still look stubbornly high at the end of the decade.†Versus its assumed £1,721 for the price cap for the last three months of 2026, the company projects £1,786 in 2030.

The government knows “people are under huge amounts of pressure†with the cost of living energy bills, according to the UK's energy secretary, Miatta Fahnbulleh.

Speaking on BBC radio 4's Today programme, she said:

And we are absolutely alongside them. And are trying to do everything that we can. That is why the prime minister on Day One of the job put that cut to VAT on electricity bills which will come into effect this October.

But it is also why we are taking a set of measures to try and help the cost of living – the £2 cap on buses, free school meals that are being rolled out, free breakfast clubs, £8000 savings on child care costs. We are doing a set of things to help people get some breathing space.

If I think about energy in particular , for me it exposes one of the things that we've been talking about . One of the problems that we've got is that we're very exposed to global fossil fuel markets that we have no control over , where, if you have a conflict in the middle East it bites families finances, that's why we are determined to fix that.

That's why we're driving towards clean energy in order to make sure we've got homegrown clean energy here that can have an impact on bills, but critically we're also trying to make that we're drawing reforms across the system to make energy more affordable.

Asked if green levies and Net Zero were costing people more, she said:

Well, absolutely not.

If we think about the last five years, families have felt a pinch of energy at two points. The war in Ukraine and now the war in Middle East.

She added “we are uniquely exposed to those gas markets. And that is why we've got to make the drive to have homegrown, clean, renewable energiesâ€.

Under the last government, she said:

we didn't invest in our energy system, we didn't invest in the grid and we're going to have to deal with that so for the grid to operate properly we've got to upgrade it.

Energy is “absolutely essential to day-to-day life and so we need to make it more affordable.â€

She agreed standing charges are “ a massive bug bearâ€.

The challenge that we have is that those costs pay for things like upgrading and investing in our infrastructure. And so we've got to recover them in some way. Ofgem looking at this, we're working with them to think about the most effective and the fairest way in which we recover that so that we are protecting consumers.

She would not be drawn on the TUC call for windfall tax on bank to cut bills, saying tax was matter for the chancellor, John Healey.

What I would say is we are already taxing the energy system. We've got a set a taxes that ensures that where, for example, excess profits are being made in the system. That that is being taxed.

But there is a fundamental issue that we have, which is if we want to fundamentally drive down bills, we've got to do the job of getting to clean home-grown energy and we are racing towards that. A hundred billion pounds of investment has been unlocked. That's enough to power 23 million homes. But also, we have got to do the jobs of making sure that the energy system is fair for consumers and I am committed to running up both those things.

We talk about public control and I think look the way that I would explain it is that we've got this strange system at the moment where we've got a mixture of things that the government is doing to intervene in the energy market to make it work to regulate the energy market and we also have private actors. I don't think that together that system is working for consumers. And if you speak to people across the country

So we've got to think about look how do we ensure that we are getting different parts of the system to work in a way that is supporting consumers.

We're looking at every part of the energy system, networks, the wholesale, to ask ourselves the question what can we do to make sure that the energy system is serving and working in the interest of consumers.

“Yet another painful rise in the price cap shows that our energy bills are still at the mercy of global fossil fuel markets,†said Friends of the Earth energy campaigner, Danny Gross.

The prime minister's VAT cut on electricity has been outweighed by soaring oil and gas prices due to the US and Israel's disastrous war on Iran.

To take back control of our energy bills, we need to kick our dependence on expensive oil and gas. That means continuing to ramp up cheap, home-grown renewable energy and insulating our homes to keep them cooler in summer and warmer in winter.

But people need help now too, particularly as this will hit those already struggling with the cost of living the hardest this winter. The government should cut energy bills straight away by moving the remaining electricity bill levies onto general taxation and introducing a social tariff for people living on the lowest incomes.

Alex Chapman, head of economic and environmental policy, at the New Economics Foundation, another think tank, said continued reliance on fossil fuels is the cause behind the energy price rollercoaster – and the answer is moving to reliable renewable energy like wind and solar power.

Today's price cap announcement will be frightening news for families up and down the country, many of who are already struggling to afford the essentials. Getting people's energy bills down as we go into winter must be a top priority for this government. At the next budget they should implement a National Energy Guarantee – which would provide every household with a cheap portion of essential energy.

But we also need to be clear about the causes of this energy price roller-coaster: our continued reliance on fossil fuels. To achieve greater stability over prices, we need to transition to a system that uses reliable renewable energy – like wind and solar. Crucially, more drilling in the North Sea isn't a viable solution to rising prices, as we'd still be dependent on the international fossil fuel energy market.

Andy Mayer, energy analyst at the Institute of Economic Affairs, a free-market think tank, believes more nuclear energy is the answer, rather than renewables.

Today's rise in the energy price cap is another blow for households already struggling with high energy costs.

Britain's Net Zero energy system is embedding high costs while the government blocks investment in our own resources. Renewables require expensive back-up, balancing and connections, yet Britain has been far too slow to develop new nuclear power.

Tinkering with who pays may provide short-term relief, but it won't bring costs down. That requires a pause and reset of the current approach.

The charity Age UK is calling on the government to raise the warm home discount to £200 this winter and other measures to help older people.

Caroline Abrahams, charity director at Age UK said:

Today's news will ring alarm bells for those older people who have repeatedly faced tough choices during the last few years of energy price hikes, and who now have nothing left to cut back on.

With energy prices set to rise yet again the government needs to take decisive action to protect the older people in greatest need. We are calling on ministers to raise the Warm Home Discount to £200 for this winter, as well as opening up an application route for people of all ages on low incomes to seek this support via their energy supplier.

The government should also top up the Crisis and Resilience Fund so local councils can respond quickly to households who find themselves in financial difficulty in their communities.

She said the warm home discount is a good scheme, but worth only around half of what it was ten years ago. Some older people miss out on it because they're not claiming an eligible benefit, or because they fall just outside the criteria.

She said it should be extended to reach more households on low incomes, not only those claiming benefits, and also more priority to people with additional health needs.

No older person should have to face another winter fretting over whether they can afford to stay warm – but we know that in light of today's news many now will. The government must act quickly to put their fears to rest.