MSE News

Energy bills to fall slightly for 11 million, but don't be fooled – most will still be ripped off

Energy bills will fall by a typical £17/year for 11 million households in April, regulator Ofgem revealed this morning – but most people can still save £370+/yr by switching supplier.

The fall is due to Ofgem lowering its price cap on standard and default tariffs from £1,179/yr for a typical user, to £1,162/yr. These are generally the most expensive tariffs – and if you've not switched in the last year, it's likely you're on one.

For the average household, this drop means bills are to fall by a paltry £17/yr from Wednesday 1 April – with many suppliers expected to price their standard and default tariffs within just a few pounds of the new level.

This isn't the maximum anyone will pay, though. The price cap sets a limit on the rates you pay for each unit of gas and electricity. If you use more, you'll pay more. 

However, don't be fooled by the cap – the current cheapest energy deal is £370+/yr less than the new cap on typical use. And prices across the market are among the cheapest they've been in three years, with over 110 deals priced under the new cap level, including some from big names and good service suppliers (links take you to filtered comparisons on our free Cheap Energy Club).

Ofgem has also announced a £17/yr reduction to the cap from 1 April for the four million households on prepay tariffs – from £1,217/yr to £1,200/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.

Martin: 'A fair price isn’t a good price'

MSE founder Martin Lewis said: "This standard-tariff price cut may illicit some mooted cheer, as millions of inactive customers will see their summer energy bills shaved down a touch. Yet the saving is a hollow one. While the price cap is defined as a fair price, a fair price isn't a good price. If you think you're doing well on it, actually you're still ripping yourself off.

"The price cap may have fallen by a smidgeon, but the prices of the cheapest deals have plummeted, and are getting close to 2016 prices. And the price cap is only for six months, while many of these cheap deals are one-year fixed rates, meaning you're locked in on a low rate for longer.

"So while the new price cap rate from April is £1,162 a year for someone with typical usage, the market's cheapest deals are a little under £800 for the same usage. And even some big six firms often have far cheaper deals available than their standard 'price capped' tariffs.

"For example, British Gas currently has a one-year fixed tariff at £865 a year, which includes a year's free boiler cover. In other words it's the same gas, same electricity, same safety, same customer service, but a cheaper price and better terms. Better still, existing customers can get it, saving £300+ a year, but not by calling up and asking, it only makes it available via comparison sites."

How does the price cap work?

The price cap sets a limit on 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 £1,179/yr on average, but that is set to fall to £1,162/yr from Wednesday 1 April.

Also, as the cap limits the price of each unit of gas and electricity, if you use more energy, you'll pay more; use less and you'll pay less.

The price cap is reviewed twice a year, with changes coming into effect in April and October. It's set to remain at least until the end of this year. From next year, Ofgem will recommend on an annual basis if it should continue, up to 2023.

While your rates will fall from April 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.

You could still save £370+/yr by switching

Switching your supplier will save you far more than relying on price cap cuts. And if you're on one of these capped tariffs, there are no exit fees, so you're free to switch away at any time. Average savings of up to £370+/yr are possible.

And now's a great time to switch as British Gas, EDF, E.on and Scottish Power have all slashed prices over the last week and now have some of the cheapest deals out there, only beaten on price by a few smaller firms, which we know many don't want to switch to.

You can use our Cheap Energy Club to compare the whole of the market or use our big name filter if you just want a deal from a name you know.

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. 

Why are prices falling? 

According to Ofgem, the reduction in the cap is largely down to a fall in wholesale energy prices (what suppliers pay for gas and electricity), due to a strong supply of gas in the market.

However, other costs for suppliers, such as operating costs, network charges, and those relating to the smart meter roll-out and environmental schemes have increased, limiting the overall cap reduction. This is despite wholesale energy prices nearly halving since last September, which left many expecting a bigger cut. 

What does Ofgem say?

Ofgem chief exec Jonathan Brearley said: "The default price cap is designed to protect consumers who do not switch from overpaying for their energy, whilst encouraging competition in the retail market. 

"Suppliers have been required to become more efficient and pass on savings to consumers. In its first year, the cap is estimated to have saved consumers £1 billion on average on their energy bills and switching rates have hit record levels. 

"Today's announcement is further good news for the 15 million households covered by both price caps who will see their energy bills fall in April. Households can reduce their energy bills further by shopping around for a better deal."

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