Martin Lewis on how to beat the £100 energy price hike confirmed for millions of homes from April
MoneySavingExpert.com founder Martin Lewis has urged all households across the country to compare energy prices urgently. The warning comes as it’s been announced that bills will rise by a typical £96/year for most households in the UK from 1 April. But most can save £200+/yr by switching.
Martin says everyone should check now via MoneySavingExpert.com's (MSE's) Cheap Energy Club, which he designed, to see if they can save as it’s the only major comparison site that is whole-of-market by default (ie, it doesn’t hide tariffs that don’t pay), and it splits the money made with switchers by paying cashback, which means prices are cheaper than going direct.
However, Martin warns that all comparison sites, including Cheap Energy Club, currently UNDERESTIMATE savings for those on standard tariffs as they don’t factor in the announced price hike.
Important: The video below is from Martin’s ITV show on Thursday night (4 February 2021) where he predicted a £70 to £90 annual price rise to be announced. In actual fact, it was £96.
The clip above has been taken from The Martin Lewis Money Show on Thursday 4 February, courtesy of ITV Studios Ltd, all rights reserved. You can turn on subtitles by selecting the keyboard image at the bottom right of the video. You can also watch the full episode on the ITV Hub.
The hike is down to energy regulator Ofgem raising the price cap on standard and default tariffs from £1,042/yr for a typical user, to £1,138/yr. These tariffs are typically the most expensive ones – and if you've not switched in the last year, it's likely you're on one (do a Cheap Energy Club comparison to see how much you could save by switching).
For the average household, the hike means bills are set to rise by £96/yr from Thursday 1 April – with many suppliers likely to price their standard and default tariffs within just a few pounds of the new level.
However, as Martin explained on ITV's The Martin Lewis Money Show last night (4 February) ahead of today's announcement, the new cap level isn't the maximum anyone will pay. 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.
If you find choosing a new tariff confusing, try our free Pick Me A Tariff tools to find the cheapest deal based on your preferences, or you can do your own full-market comparison via our Cheap Energy Club.
'Hopefully it will shock some people into action'
Martin says: "Many will be shocked by the price cap rising £96/yr on a typical bill – the silver lining is that it will hopefully shock some people into action.
"The cap may be a ‘fair’ price, but it is far from a good one. Over the last few years, it has been on average at least £200 a year more than the cheapest tariffs for switchers. This rise is really reverting it back to form – it was only artificially low until now on the back of the huge reduction in world energy prices, due to the early days of the pandemic.
"Yet there’s an important warning for the 10,000s who will flood towards comparison sites right now. These sites (including ours at MoneySavingExpert) won't show the right saving. The saving shown will be listed compared to the current price cap level, as if you’d stick on that for a year. It won’t include this big jump due to come, lasting at least six months, from April. That can only usually be factored in once energy firms publish their new, detailed rates for each region – which could be weeks away.
"So while I’d strongly urge everyone on a standard tariff to compare and find their cheapest supplier – don’t be put off by the relatively small saving shown. In reality it's likely to be much bigger."
Rising energy demand pushes up the price cap
According to Ofgem, the cap rise is down to energy demand recovering, after usage fell sharply in the wake of the first lockdown. Demand is now back to normal levels, which has pushed wholesale energy prices (what suppliers pay for gas and electricity) back up. It also includes a £23 add-on to help suppliers cover coronavirus costs.
Compared to the new price cap, the current cheapest energy deal is on average £213/yr less on typical use, including £25 Cheap Energy Club cashback – do don't be ripped off.
If you have switched recently, it's likely this won't affect you, as prices are only capped on expensive standard variable tariffs that you're automatically rolled on to when a fixed deal ends, or you move home.
Ofgem has also announced a £87/yr increase to the cap from Thursday 1 April for four million households on prepay tariffs – to £1,156/yr for a typical household.
How the price cap works
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 £1,042/yr on average, but that is set to rise to £1,138/yr from Thursday 1 April.
As MSE founder Martin Lewis explained on the Martin Lewis Money Show last night: "They call it a price cap in reality it isn't a price cap, it's a rate cap. There's no one price you shouldn't pay more than. The more you use, the higher your price cap, the less you use the, the lower yours."
The price cap is reviewed twice a year, with changes coming into effect in April and October. It's set to remain in place at least until the end of this year, with Ofgem to recommend later this year it should continue into 2023.
You could save a massive £200+/yr by switching
Compared to the new price cap, switching to the cheapest on the market right would save on average £213/yr, based on typical use, including Cheap Energy Club cashback. And if you're on one of these capped tariffs, you can't be charged exit fees, so you're free to switch away at any time.
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 underestimated as they are based on the current cap.
As Martin Lewis explained on the Martin Lewis Money Show last night: "Even after the price cap is announced, we then have to wait again until the firms announce their own new tariff and until they send out the rate cards for that, comparison sites just have to base you on what they currently say they'll charge.
"So ultimately, they'll tell you they're saving this much, but ultimately, the price cap's going to go up, so they should tell you they're saving a lot more."
He also added: "I'd always use a whole of market comparison, as the cost is based on where you live and how much you use."
Struggling to pay your bill? There's lots of additional help available right now
Due to the coronavirus pandemic, Ofgem has strengthened protections for energy customers, and put in place new rules to help those struggling to pay their bills.
Most importantly, your supply won't be cut off – disconnections of standard credit meters have been completely suspended, while new rules have been put in place to ensure prepayment customers get emergency or additional credit to ensure the lights stay on.
What does Ofgem say?
Ofgem chief executive Jonathan Brearley said: "Energy bill increases are never welcome, especially as many households are struggling with the impact of the pandemic. We have carefully scrutinised these changes to ensure that customers only pay a fair price for their energy.
"The price cap offers a safety net against poor pricing practices, saving customers up to £100 a year, but if they want to avoid the increase in April they should shop around for a cheaper deal."