Martin Lewis on new Energy Price Cap: “Ditch the cap if you can!”

Today, the energy regulator Ofgem have announced that the Price Cap will rise by 2%. Please see MSE's live news story for full details on the change and what this means for energy bills.

Reacting to the announcement, Martin Lewis, founder of MoneySavingExpert.com, said: "CONFIRMED: Energy Price Cap to rise 2% on 1 Oct - with a chunk of the rise on the Standing Charge hitting lower users! Your brief need-to-knows...

"Ofgem's Price Cap dictates the rate all homes, except in Northern Ireland, on standard tariffs pay. That’s the 2/3rd of domestic properties who aren't on fixes or special deals . The regulator has just announced it will rise at the upper end of predictions, UP 2% for the 1 Oct to 31 Dec Price Cap.

DITCH THE CAP IF YOU CAN!

"Now we know the Cap will be at the current rate or higher until at least the end of the year, it's easy to compare to the cheapest fixes...

- They are on average nearly 17% less than the Oct Cap rate (c£250/yr cheaper on a typical bill)
- And have guaranteed rates, so you know they won't rise for at least a year. That means for those on a capped tariff, switch to a fix and your energy use immediately costs less, and is guaranteed to do so until at the very least the 31 Dec, but almost certainly well beyond that too...

"Analyst's current predictions are that the Cap will drop slightly in Jan (down 2%ish) then a rise again in April (up 5% ish) - though this involves some crystal ball gazing as much can change.

"As your cheapest fix depends on your location, usage, payment type (sadly there are no non-Smart Prepay fixes) use a whole-of-market comparison like our ' Cheap Energy Club' https://moneysavingexpert.com/cheapenergyclub/ to compare and find yours. (it also looks at the more innovative but complex time-of-use and EV tariffs too).

LOWER USERS HARDER HIT BY THE CAP RISE

"I was pleased to see the regulator press release has finally stopped leading on the meaningless 'annualised typical use' figure and instead has copied my past phrasing saying "This means from October to December, a typical household on a default tariff will pay £102 for what currently costs £100 per month."

"Yet the impact is not uniform. While half this rise is due to wholesale costs increasing slightly on average over the assessment period, the rest is due to 'network and policy costs' increases, and they are lumped into the daily Standing Charge.

"The average Standing Charge is rising 4.5% for electricity users and 14% for gas. To put it in context if it stayed at this level over a year, you'd pay a horrific £320 a year (on average for Direct debit) just for having the facility of gas or electricity even if you didn't use it.

"That means lower users will be disproportionately hit, with some facing effective rises of 5% or more. Yet perversely, higher users gain, as the rate for each unit of gas you use is being cut. So high users who use a lot of gas may see a rise of just 1%ish.

"This is a moral hazard. And especially terrible for many older people who only use their gas in winter. The Standing Charge needs to be reworked. I will continue to campaign for that. There are plans for firms to be forced to offer low or no standing charge tariff option by the start of next year (hopefully via the Price Cap) but it is not 100% locked in. "

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