Energy bills to fall for 11 million, but don't be fooled – check if you're still being ripped off
Energy bills will fall by £75/year for 11 million households in October, regulator Ofgem has revealed this morning – but don't let this lull you into a false sense of security, as you could still save £330+/yr by switching supplier.
The drop is down to Ofgem lowering the price cap on standard and default tariffs from £1,254/yr for a typical user, to £1,179/yr. For an average household, this means a likely price cut to bills of £75/yr from Tuesday 1 October, as most suppliers are expected to price within just a few pounds of the new level.
This isn't the maximum you can be charged, though. The price cap sets a limit on the rates you pay for each unit of gas and electricity, so if you use more, you'll pay more.
However, don't be fooled – even after this cut, most could still save £330+/yr by switching to the cheapest deals on the market. And it's a good time to switch as there's a price war raging among the big six energy firms – see how their tariffs stack up with our Cheap Energy Club 'big name' comparison.
Ofgem has also announced a £25/yr reduction to the cap for the four million households on prepay tariffs from 1 October – from £1,242/yr to £1,217/yr for a typical household.
See how much more you could save on your energy bills by doing a quick full-market comparison via our free Cheap Energy Club.
‘Don’t sit on your hands as you are being fined for apathy’
Guy Anker, deputy editor of MoneySavingExpert.com, said: "There's a huge risk this reduction in the price cap will lull people into a false sense of security they're on a decent rate. Yet the 11 million households on a standard tariff are almost certainly being ripped off now, and will be ripped off after the cut too.
"That's because standard rates will typically be £300+/yr more expensive than the cheapest on the market, even after the reduction in standard tariff prices. Just this week, the market's really heated up, with some of the biggest players coming out with really competitive deals.
"So our message is the same now as it's always been: ensure you're on the cheapest possible deal and do not simply sit on your hands on your energy provider's standard tariff as you are being fined for apathy."
So how does the price cap work?
The price cap limits the maximum amount suppliers can charge for each unit of gas and electricity you use, and sets a maximum daily standing charge (what you pay to have your home connected to the grid).
Currently someone who uses a typical amount of energy on a standard or default tariff pays a maximum of £1,254/yr on average, but that is set to fall to £1,179/yr from Tuesday 1 October. However, bills will still be higher following the cut than they were in January, when the first price cap came into force.
Also, as the cap sets a limit on the price of each unit of gas and electricity, if you use more energy, you pay more; use less and you pay less.
The price cap is reviewed twice a year, with changes coming into effect in April and October. It's set to remain until 2020, after which Ofgem will recommend on an annual basis if it should continue, up to 2023.
While your rates will fall from October if you're on a standard or default tariff, your provider may not cut your direct debit immediately. And of course, if you do use more energy than usual, what you pay will reflect this.
Why are prices falling?
According to Ofgem, wholesale energy prices – what suppliers pay for gas and electricity – have fallen significantly this year, due to lower than usual demand for gas in the colder months, as well as healthy supplies and reserves of gas. This has pushed down wholesale prices for gas and electricity.
You could still save £330+/yr by switching
The best way to save on your energy is to switch supplier, even with prices coming down. And if you're on a capped tariff, there are no exit fees, so you're free to switch away at any time – and savings of £330+/yr are possible.
And now's a great time to switch as British Gas and EDF have reignited the price war among the big six. They have slashed prices over the past few days and now have by far the cheapest deals from the heavyweights, and can only be beaten on price by a few small firms, which we know many don't want to switch to.
As we don't yet know how suppliers will change their prices under the new level of the cap, the savings you see when you compare will be slightly overestimated as they are based on the current cap – but don't let that put you off, you can still save.
What does Ofgem say?
Ofgem chief exec Dermot Nolan said: "The price caps require suppliers to pass on any savings to customers when their cost to supply electricity and gas falls.
"This means the energy bills of around 15 million customers on default deals or prepayment meters will fall this winter to reflect the reduction in cost of the wholesale energy.
"These customers can be confident that whatever happens, the price they pay for their energy reflects the costs of supplying it.
"Households can cut their bills further in time for winter, and we would encourage all customers to shop around to get themselves the best deal possible for their energy."