London CNN Business  — 

Life is about to get much more expensive for tens of millions of Brits.

A cap on how much UK consumers can be charged for energy will increase by 54% in April, according to energy regulator Ofgem. That means the 22 million households covered by the cap will be paying hundreds of pounds more a year to heat and light their homes.

UK households are already under huge pressure from rising prices and interest rates, and campaign groups warn that millions of people are struggling to heat their homes. Payroll taxes are also scheduled to increase in April, adding to the country’s cost of living crisis.

The price cap limits the amount suppliers can charge for a unit of natural gas or electricity. The increase means that the typical consumer on a standard tariff paying by direct debit will see their energy bills increase by £693 ($939) to £1,971 ($2,670) per year, according to Ofgem.

The increase reflects the sharp rise in wholesale natural gas prices in Europe. But the “catastrophic” hike will force an additional 1.1 million households into fuel poverty, Simon Francis, coordinator of the End Fuel Poverty Coalition, said in a statement.

The UK government said Thursday that it would try to take the sting out of the price increase by spreading it over a period of years. Most households will receive a discount on their energy bills starting in October that will have to be repaid in installments over five years.

Finance minister Rishi Sunak also announced a £150 ($204) reduction in local taxes for about 20 million households.

“I know that the number one issue on people’s minds is the rising cost of living,” Sunak said in parliament. But he added that “it is not sustainable to keep holding the price of energy artificially low.”

UK inflation increased to 5.4% in December, reaching its highest rate since 1992, according to official statistics released last month. The biggest price rises were for transportation, food and beverages, furniture, housing and household goods.

Prices are now rising much faster than pay, making it more difficult for households to make ends meet. Wages increased at an annual rate of just 3.8% in December.

Governor of the Bank of England Andrew Bailey arrives for a press conference.

The Bank of England took action to rein in prices in December, becoming the first major central bank to hike interest rates since the start of the pandemic. The bank announced a second hike on Thursday, taking its benchmark rate to 0.5%.

Higher interest rates mean increased costs for many borrowers, including mortgage holders who are on a variable rate.

The Bank of England said that it expects inflation to increase further in the coming months before peaking at around 7.25% in April.