Money expert Martin Lewis has warned of price rises after the energy price cap review.
The energy price cap will be reviewed by the UK’s energy regulator Ofgem in April. This could lead to households that had not fixed their energy tariff seeing price rises.
But what is the energy price cap? What is Martin Lewis’ advice on the energy crisis? Should I switch to a fixed rate?
We understand many people are asking the same questions and this is why we created this article. So, let’s take a look.
What Is The Energy Price Cap?
Across the UK, the energy price cap is a limit of what energy companies can charge for their default standard variable tariffs. This is a cap on the price for each unit of gas and electricity that you use.
However, there are other ways to find the cheapest energy deals on the market. With warnings of price-capped tariffs in the past, last year we saw wholesale energy prices explode. This means that you will eventually move to a price-capped tariff.
Usually, those who aren’t on a fixed will be on the price cap. You’ll be on it for the following reasons:
- You have never switched tariffs.
- Your cheap fixed deal ended and you didn’t take any action.
- Your energy firm recently folded meaning you moved to another supplier.
Will The Energy Price Cap Rise?
On the 1st of April, the energy price cap will likely increase. It is expected that it will rise by a staggering 51%. Every six months, the price cap is reviewed based on wholesale energy prices. Currently, these prices are reaching record highs.
Some predictions, such as Analysts Cornwall Insight are forecasting prices of £1,925 per year for typical usage. Even though usage in April is typically lower, direct debits will possibly be upped based on annual usage.
After appearing on ITV’s The Martin Lewis Money Show, Martin Lewis stated that if the Government doesn’t intervene, “the energy price cap, which the majority of homes are on will rise over 50 per cent adding an unaffordable £600 to a typical bill”.
Even more worrying is that he is predicting when it comes to October, when there is another Ofgem price cap review, a further 20 per cent will be added on top of the predicted price cap for April.
What Is The Current Situation?
You may have seen that due to rising wholesale prices, many energy suppliers have gone bust. A record number have failed in the last two years, putting customers at risk of rising prices. These suppliers were unable to pass on these increasing costs of wholesale gas due to Ofgem’s price cap.
However, at times like these, it is crucial to have access to a broad range of suppliers to ensure you are getting the best deal. Citizens Advice have said that prices will increase from £1,277 to at least £1,891 in April.
This could lead to people having the “desperate choice between heating and eating” according to Alex Belsham-Harris, of Citizens Advice. With the energy bill troubles only likely to get worse, they are calling for the UK government to step in.
He went on to say “the quickest and easiest way for the government to provide direct support for those hardest hit will be through the benefits system”. Homes across the UK are without protection from these rocketing energy bills, he later stated that Government plans would “limit the financial pain of increased bills.”
Should I Switch To A Fixed Rate?
By sticking to the price cap, many people have been saving money. However, the closer to April 1st we get, the less time that these people have of benefitting from the current low rates.
If you switch now, you would lose just over two months of the cheap rate. These would be high use months and it would take an average of 17 days to switch.
Taking this into account, if you have been offered a fixed rate that is no more than 40% costlier than your current price-capped tariff, you should consider switching.
What Is Martin Lewis’s Advice On Energy Bills?
Right now, the advice is to do nothing. However, there are ways to instantly calculate your electricity bill online with no personal information. This will help you organise and understand your charges, especially if you are concerned about being overcharged
It may sound strange, but if your energy deal is coming up for renewal, Martin Lewis has advised you to do nothing. The reason for this? You will end up on an offer that is limited by the price cap.
Previously, the cheapest energy deals have been the fixed rate deals and not the variable rate ones. However, as energy prices continue to soar, the better option is to be on a provider’s variable rate deal which is limited by the cap.
On The Martin Lewis Money Show, he said that “people should still be doing nothing and sticking to the price cap” and that “currently the energy price cap forces energy suppliers to sell gas and electricity below the cost price”.
Due to this, he summarised that “there are no meaningfully cheaper deals”. Some energy companies could offer their existing customers cheap fixed rate deals, however, you should only do this if the cost of it is 40% of the current £1,277 price cap.
What Are The UK Government’s Plans For Rising Energy Costs?
One of the ideas that are seeing traction is a government-administered scheme. trade body Energy UK are backing this scheme to dampen the impact across multiple years, ensuring that consumers aren’t hit all at once.
Planned and forecasted by energy suppliers, as well as commercial lenders, a sum of at least £7bn would cover the immediate costs incurred to buy energy on wholesale markets at record prices.
This loan wouldn’t require a government guarantee, however, officials would be responsible for ensuring repayments. Those in favour of this plan say that it could remove the necessity of passing on soaring wholesale gas prices that come with an immediate jump in the energy price cap that puts a limit on the rates suppliers can charge bill payers.
Without government intervention, estimates predict that in April, prices could rise from £1,277 to nearly £2,000. Meanwhile, if lenders could cover this
The cap is forecast to rise from £1,277 to nearly £2,000 in April without the upfront cost of wholesale energy prices, energy companies could then slowly adjust tariff increases across multiple years, then repay lenders through an industry-wide scheme overseen by the government.
What Should I Do If I Am Worried About Paying My Energy Bills?
We understand this is a stressful and overwhelming time for many. If you are finding paying your energy bills tough, try checking to see if you can claim for an energy grant or the Warm Home Discount. Also, speak to your energy supplier.
Your supply won’t be cut off and they may come up with a solution or payment plan to help get you through this period. You could also use these energy-saving tips to help reduce your usage.
Does The Energy Price Rise Effect People Living In Flats?
Yes, there are hundreds of thousands of people living in flats that will face energy price increases.
After April 1st when the price cap is increased, people in the UK that have rented or bought apartments in one of the 17,000 blocks that rely on hot water systems and communal heating could see fourfold increases.
Energy suppliers are passing down the soaring wholesale price increases unchecked. People impacted will be those living in developments that have least some of the heating or hot water is provided by a centrally controlled system. These are usually administered by the company that manages the estate.
More than likely, these flats and apartments in the UK will be supplied by one single energy supplier. This means that it was be classed as a commercial deal rather than domestic supply, leading to bills not being protected by Ofgem’s price cap.
The UK government have said that it would like Ofgem to become the regulator for heat networks. In December, this was announced by the government, however, it could be months if not years before this is enabled due to legislations being created.
So, what should people living in flats and apartments do in the meantime? Well, until there is a change, unregulated homes may be facing higher bills for years. Unfortunately, this legislation is long overdue to protect customers that have a communal heating scheme.
Ofgem has stated they are committed to becoming the regulator of heat networks, however, the legislation timings are not in their control.