LONDON, Aug 26 (Reuters) - British energy bills will jump 80% to an average of 3,549 pounds ($4,188) a year from October, the regulator said on Friday, plunging millions of households into fuel poverty and businesses into jeopardy unless the government steps in.

Ofgem CEO Jonathan Brearley said the rise would have a massive impact on households across Britain, and another increase was likely in January as Russia’s move to throttle European supplies drives wholesale gas prices to record highs.

“This is a catastrophe,” Britain’s leading consumer rights champion Martin Lewis said, warning that people would die if they refused to cook food or heat their homes this winter.

Brearley said the government response needed to match the scale of the crisis with “urgent and decisive” action.

Prime Minister Boris Johnson, who has less than two weeks left in office, said his successor would announce “extra cash” targeted at the most vulnerable next month.

“But what I don’t think we should be doing is trying to cap the whole thing for absolutely everybody, the richest households in the country,” he told reporters.

In May, when price forecasts were significantly lower, the government announced a 400-pound ($472) discount on consumer bills for this winter.

The opposition Labour Party said that if it were in power it would freeze prices, which could cost around 60 billion pounds a year - almost as much as the COVID pandemic furlough scheme.

The pressures are being felt across Europe but in Britain, which is particularly dependent on gas, the price rises are eye-watering. read more

An annual average bill of 1,277 pounds last year will hit 3,549 pounds this year and leading forecaster Cornwall Insight said prices were likely to rocket again in 2023.

It expects bills to peak in the second quarter at 6,616 pounds and households could pay around 500 pounds a month for energy in 2023, a higher sum than rent or mortgage for many.

The surge has ballooned inflation to a 40-year high and the Bank of England has warned of a lengthy recession. Despite the dismal outlook, Britain’s response has been hampered by the race to replace Johnson that runs until Sept. 5, focused on the votes of Conservative party members keen on tax and spending cuts.

The two candidates - Foreign Secretary Liz Truss and former finance minister Rishi Sunak - have clashed over how to respond, with the front-runner Truss initially saying she would rather cut taxes than give “handouts”.

Both sides have acknowledged that the poorest in society will need support and the government went further on Friday in saying that households should look at how much energy they use - after previously saying people would know what to do.

NATIONAL EMERGENCY

The Labour party said the country could wait no longer for action. “This is a national emergency,” finance spokesperson Rachel Reeves said.

Truss and Sunak have suggested suspending environmental levies or cutting a sales tax - both ideas dismissed by analysts as far too little to blunt the big hit to household budgets.

Increases in wholesale prices are passed on to British consumers through a price cap, calculated every three months, that was designed to stop energy suppliers profiteering but is now the lowest price available for 24 million households.

Such is the volatility in the sector that almost 30 energy retailers have gone out of business and Ofgem said most domestic suppliers are not making a profit.

Supplier E.on said Britain should accelerate its move away from gas and better insulate its draughty Victorian-era housing stock, while rival Scottish Power urged the government to set up a deficit fund to keep bills down and spread the cost over a 10-15 year period.

Ofgem said customers who could not pay their bills would be offered affordable repayment plans by their supplier.

They would only be forced to move to prepayment meters, which charge above-average rates, as a “last resort”, it said.

The market is too unstable to forecast the next cap for January, Ofgem said, but conditions in the gas market in winter meant prices could get “significantly worse” through 2023.

($1 = 0.8463 pounds)