First of the big six reveals cut to energy bills after price cap drop – but you could save £100s/yr by switching
Big six supplier E.on has become the first energy provider to reveal its prices under the new cap on standard tariffs, reducing bills by a typical £77/year from October – just £2/year under the new level. But don't be fooled, most could still save £100s/year by switching.
As expected, E.on has snuggled its prices right up to the maximum allowed under the new price cap of £1,179/yr for a typical user. It has cut bills for about 1.8 million customers on its standard tariff, from £1,254/yr for a typical user, to £1,177/yr. Yet this ISN'T the maximum anyone will pay, as the price cap places a maximum charge on the rate you pay for gas and electricity – use more and you'll pay more.
E.on's move comes just days after regulator Ofgem announced it was reducing the level of the price cap on standard and default tariffs from Tuesday 1 October. The rest of the big six are expected to follow suit and shift their prices close to the cap.
However, while E.on's cut means a saving of £77/yr for a typical household on its standard gas and electricity tariff, switching to its cheapest fix would save nearly £134/yr. And this is eclipsed by the £330+/yr savings available for switching away to the absolute cheapest energy deal out there.
See how much more you could save on your energy bills by doing a quick full-market comparison via our free Cheap Energy Club.
'You'll still be ripped off when the price cap drops'
Guy Anker, deputy editor of MoneySavingExpert.com, said: "Unsurprisingly, the first of the big six energy firms will price its standard tariff within just £2 of the cap, with the rest expected to follow suit. Put simply, standard tariffs from the biggest firms continue to be massively expensive compared with the market's cheapest deals – with savings of more than £300 possible.
"If you're on one of these tariffs, and you get a letter saying your bills are coming down, don't be fooled. You were being ripped off before the price cap, you're being ripped off now and you'll still be ripped off when the cap drops.
"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."
You can save £330+/yr by switching
Most of the big suppliers are expected to follow E.on and reduce their standard tariff rates to or within a few pounds of the maximum allowed under the new price cap – as they've done on all previous occasions. So if you're on a standard or default tariff, you'll still be hugely overpaying when the new rate kicks in.
You're free to switch away at any time – suppliers can't charge you exit fees if you're on this type of tariff. And now's a perfect time to do so as British Gas and EDF have reignited the price war among the big six. They have slashed prices over the past week 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.
See how their tariffs stack up with our Cheap Energy Club 'big name' comparison, or you can do a full market comparison if you want the absolute cheapest deals – where average savings of £330/yr are possible.
So how does the price cap work?
The 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.
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 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.
What does E.on say?
E.on chief executive Michael Lewis said: "As we predicted, the overall downward trend in the wholesale markets since the start of February means customers on standard variable tariffs will benefit from a fairly significant reduction in bills from 1 October onwards.
"We'll be writing to our customers in the coming weeks to make them aware of this change and how it benefits them."