Martin Lewis explains what the price cap means for you – including ‘outrageous’ charge and if it’s worth fixing
MARTIN Lewis has explained what the price cap means for energy customers.
It comes as the energy regulator Ofgem has confirmed the figure this morning, which comes into effect on July 1.
The price cap will fall from the current £1,690 a year to £1,568 – the lowest level in two years.
It means the average household paying by direct debit for dual fuel will see their annual bill drop 7% to £122.
But consumer champion Martin Lewis has revealed why it might not be the best news for everyone.
Speaking on X, formerly known as Twitter, Martin explained the “good, bad and ugly” news of today’s announcement.
He stated that it is of course good news that bills will be dropping for 80% of those in England, Scotland and Wales.
That’s because Ofgem‘s price cap impacts only those on standard tariffs, not fixed or special tariffs.
Martin said: “The energy price cap is to drop an average of 7.2% for Direct Debit customers on 1 July.
“6.9% for prepay customers, 7.1% for those who pay in receipt of bills.
“So roughly for each £100 you pay now, you’ll pay £93 from July to September – that’s the good news.”
Moving onto the “bad” news Martin explained that while the unit rates are coming down by roughly 9%, depending on where you live, standing charges aren’t budging.
The energy regulator said the price a supplier can charge for gas will fall from 6.04p per kWh today, to 5.48p from July 1.
The price of electricity will fall from 24.5p per kWh to 22.36p, Ofgem said.
Martin said: “The much-despised standing charge is unchanged.
“So you will continue to pay around 90p a day, just to have gas and electricity even if you don’t need it.”
Standing charges, which cover things like maintaining the network and operational costs, will drop to 31.41p from 31.43p a day for gas and from 60.1p to 60.12p for electricity.
How do I calculate my energy bill?
BELOW we reveal how you can calculate your own energy bill.
To calculate how much you pay for your energy bill, you must find out your unit rate for gas and electricity and the standing charge for each fuel type.
The unit rate will usually be shown on your bill in p/kWh.The standing charge is a daily charge that is paid 365 days of the year – irrespective of whether or not you use any gas or electricity.
You will then need to note down your own annual energy usage from a previous bill.
Once you have these details, you can work out your gas and electricity costs separately.
Multiply your usage in kWh by the unit rate cost in p/kWh for the corresponding fuel type – this will give you your usage costs.
You’ll then need to multiply each standing charge by 365 and add this figure to the totals for your usage – this will then give you your annual costs.
Divide this figure by 12, and you’ll be able to determine how much you should expect to pay each month from April 1.
Overall energy bill standing charges will remain at £334.
Martin and his team at MoneySavingExpert have campaigned for a long time to get the standing charges reduced, calling them “outrageous”.
He declared: “I know many people hate the standing charge, it is a moral hazard.
“It means that people at the lower end don’t get as much reduction when they cut their usage to cut their bills.”
It means that higher users will see a proportionately bigger cut than lower users.
Martin also pointed out that Ofgem is currently reviewing how the price cap is calculated, including standing charges.
This consultation is due this summer.
“My fingers are crossed they’ll bring it down, but there is a problem that it takes the government to protect vulnerable high users and Ofgem may not bring the standing charge down because it doesn’t have the power to protect these users,” he added.
The “ugly” news refers to the latest predictions for the next price cap by the experts and Cornwall Insight.
Martin said: “The new prediction from Cornwall Insight is that the Energy Price Cap from October will rise 12%.”
He did point out though that we’re only one week through the three-month assessment period so things could change.
What should you be doing now?
Martin concluded: “So I think that probably this July price cap fall is the last fall we’ll see for a while.
“It means actually if you look on average over the next year you’re probably only talking about your bills reducing from 2% from where they are right now.
“But you can get fixed-rate deals at 9% cheaper than where you are right now.
“So the cheapest fixes are looking a very good option.”
But as always, make sure to do some research and use a comparison tool such as MSE or USwitch.
Something to bear in mind though is that most comparison sites just give you the current price cap, while you need to look at the price cap over the next year to get the best view.
Of course, you should only switch to the cheapest fixes though, not all of them are bargains and some of them have hefty exit fees.
Martin Lewis‘ MSE has revealed several of the cheap deals available right now.
As mentioned, a 9% fix is among the best and it comes from Ecotricity’s Green one-year fix.
Bear in mind though, it does have £75 dual-fuel exit fees – plus you’ll need a smart meter and must pay by fixed or variable monthly Direct Debit.
MSE says Outfox the Market’s Fix’d Dual May24 is also a good option.
It’s 8% less than the current price cap, plus it doesn’t have any exit fees.
The deal is available as dual-fuel only and you must manage your account online, but smart meters are not required.
OTHER ALTERNATIVES
If you don’t want to commit to a fixed tariff it’s always worth considering a variable tariff.
Kara Gammell, personal finance expert at comparison site Money Supermarket Group, previously told The Sun: “These will almost always be at or below the price cap.”
For example, E.ON Next’s Pledge variable tariff offers a fixed discount of around three per cent on the price cap rates for 12 months.
It will save the average household around £50 a year but comes with a £50 exit fee if you switch before the year ends.
The deal is available to both new and existing customers.
For a bigger reward but at a higher risk, Octopus Energy offers two variable tariffs which track wholesale gas and electricity costs.
Customers on the Octopus Tracker see their prices change daily, but unit rates have remained consistently lower than the price cap in recent months.
The Agile Octopus tariff works similarly to the Octopus Tracker, the main difference is the former’s prices change every half hour.
Remember that those wishing to switch to any of these tracker tariffs must have a smart meter.
Below we’ve listed some handy ways you can cut your energy costs.
What energy bill help is available?
There are a number of different ways to get help paying your energy bills if you're struggling to get by.
If you fall into debt, you can always approach your supplier to see if they can put you on a repayment plan before putting you on a prepayment meter.
This involves paying off what you owe in instalments over a set period.
If your supplier offers you a repayment plan you don’t think you can afford, speak to them again to see if you can negotiate a better deal.
Several energy firms have grant schemes available to customers struggling to cover their bills.
But eligibility criteria varies depending on the supplier and the amount you can get depends on your financial circumstances.
For example, British Gas or Scottish Gas customers struggling to pay their energy bills can get grants worth up to £1,500.
British Gas also offers help via its British Gas Energy Trust and Individuals Family Fund.
You don’t need to be a British Gas customer to apply for the second fund.
EDF, E.ON, Octopus Energy and Scottish Power all offer grants to struggling customers too.
Thousands of vulnerable households are missing out on extra help and protections by not signing up to the Priority Services Register (PSR).
The service helps support vulnerable households, such as those who are elderly or ill, and some of the perks include being given advance warning of blackouts, free gas safety checks and extra support if you’re struggling.
Get in touch with your energy firm to see if you can apply.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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