Martin Lewis: 11m will see energy bills cut on 1 Oct – but check if you’re being RIPPED OFF
Update 8 August 2019: Ofgem have announced that the price cap will fall by £75/year from October. For more information read our news story.
I can reveal that on 1 October, it is almost certain the energy price cap rate, for all but those on prepay meters, will drop by roughly £80/year. This means 11 million households on these tariffs will get cheaper deals. Yet that worries me. It risks giving people a false sense of security that they're getting a good price – when nothing could be further from the truth.
In January, regulator Ofgem launched the first price cap on standard tariffs – after the Government pushed it into doing so.
All the big six firms (EDF, British Gas, E.on, Npower, SSE and Scottish Power) follow it exactly. In other words, the price cap price is their standard tariff price – effectively we have regulated pricing.
The January cap was set at £1,137/yr, which lasted till 31 March, when it jumped hugely to the current £1,254/yr. The price is set to be reviewed now every six months. The next change is on 1 October, when it is predicted to be £1,171; less than now, but still 3% higher than the first cap.
The price cap isn’t really a price cap
While it's called a price cap, it isn't the max anyone will pay – it's just what the cap would be for someone who uses a typical amount of gas and electricity. If you use more energy your cap is higher; use less, your cap is lower.
The cap actually varies by region and in effect it's the rate per unit which is capped, not the price.
Why it’s going to drop
While Ofgem won't publish the rate of the new cap until 7 August, it has published the formula which dictates it, which is based on the average wholesale prices over six months and that period is almost over.
Using that, analysts at Cornwall Insight have predicted it'll get £83/yr cheaper for someone on typical use – so leaving a bit of wriggle room it's pretty safe to say it'll drop somewhere between £75 and £90 when it is announced.
A fair price isn’t a good one
While the price cap is set to be a "fair" price, that doesn't make it a good one. If you haven't switched in over a year, you're likely on your supplier's standard 'price-capped' tariff and that roughly means you are OVERPAYING by about £300/yr.
While the current price cap is £1,254/yr and will drop to roughly £1,171, for the same usage the cheapest deals are about £900/yr. So the price cap is about as effective protection as a mosquito net would be from a crocodile.
Of course for those who never switch, it is a help. Yet the mere fact that you're reading this shows you've an interest in doing better than that, and therefore you can…
Step 1: Find out how much you're overpaying in just five minutes. It really isn't difficult to find your cheapest energy deal. It should be an annual task – not a 'do it once and it's done' job.
Just fill in your details in our Cheap Energy Club which also gives you £25 dual-fuel cashback if it can switch you, making it cheaper than going direct – and unlike most comparisons it shows all tariffs by default, rather than hiding those that don't pay.
It only takes minutes to find the cheapest. It's best if you have your bills to hand to do this, but even if not, most comparison sites will estimate for you. The sin of inaction is greater than the sin of inaccuracy.
Yet there are a few things you should be aware of…
- Your savings will be slightly overestimated. If you're on a standard tariff, price comparisons have to base your savings on the published current price. So they can't factor in the likely future price cap reduction – meaning your savings will likely be a little overestimated.
- Switching isn't usually a big deal. It's the same pipes, gas, meter, safety – you don't lose supply – the only difference is price and customer service. Those who aren't online can call some comparison sites too (or ask friends to help).
Step 2: When it comes to energy, the very cheapest isn't necessarily the best. I know this sounds the complete opposite to what I've just been saying, but go with me. Your cheapest tariff depends on where you live, but generally the very cheapest providers are new firms with possibly little financial backing (hence nine going bust within the last year).
So for ease and safety, when comparing in the energy club, use the filters to find names you know or providers with better customer service. The difference in price isn't likely to be much at all, but there are so many small providers, so you may need to scroll down a couple of pages.
Plus there are now many 100% renewable electricity tariffs. While these used to be at a premium, now, many good service firms offer these at near the cheapest prices. So if you want to go green, keep an eye out.
Big names also let you LOCK IN for a year at super-cheap rates – but only if you ask
All of the big six energy providers currently have far cheaper deals than the £1,254/yr price-capped current tariffs. For example, British Gas has a one-year fix (new customers can ask for it) at just £990 – so same gas, electricity, safety and customer service but £260/yr cheaper (£180 once the cap drops).
So if you really don't want to switch, some comparison sites let you filter so you can see the cheapest tariffs from your existing company.
I know switching puts some off, and I can't promise every single person who does will have a perfectly easy experience (though the vast majority will), but it really is worth doing – if not you're effectively ripping yourself off.