Energy bill hikes hit millions as price cap rises by an average £139/yr – but there are no cheaper deals to switch to right now
Around 11 million households on standard tariffs will see energy bills jump by a typical £139/year as the new price cap kicks in today. But due to the extreme situation in the energy market, with wholesale prices at record highs, there are now no deals cheaper than the new price cap.
The regulator Ofgem has increased the price cap on standard and default tariffs today from £1,138/yr to £1,277/yr for a typical dual-fuel household. This rate applies to those who've never switched, and sets the default for those coming off fixed deals. Over half of UK households are on it.
Bear in mind, 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.
When it announced the increase back in August, Ofgem said the rise was down to surging wholesale energy prices (what providers pay for gas and electricity). Since then, the energy market has been plunged into crisis, with wholesale prices continuing to rise to record highs, and a total of nine energy firms going bust in September.
Sadly, as a result of rocketing prices, there are no deals meaningfully cheaper than the price cap. You can do a Cheap Energy Club comparison now if you like, but you almost certainty won't find anything cheaper, as explained by Martin in MSE's weekly email.
With no cheaper deals, see the price cap as a six-month fixed deal
Having always been among the most expensive deals, price-capped variable tariffs are now among the cheapest – cheaper than the cost price of energy. There are no deals for new customers meaningfully lower. In fact, very few providers even allow new customers to switch to their price-capped tariffs at the moment.
As this new cap will last until 1 April 2022, you could treat it as a six-month fixed rate, which you have the freedom to leave whenever you want (hopefully because cheaper deals return).
In comparison, if you want a fixed deal right now, you'll pay much more than on a standard tariff – the cheapest is a one-year fix from Scottish Power at £1,577/yr on typical use, £300 more than the price cap.
On 1 April, it is likely the price cap will rise substantially again - on the current run-rate, the prediction is another 14% hike to £1,455/yr (on typical use) - still cheaper than today's cheapest fixed-rate deal. If things deteriorate further, fixes may look a decent price with hindsight, but right now it seems a very substantial premium to pay for certainty, and our best guess is, for most, it isn't worth
The big energy firms have all hiked prices
Once again, the biggest suppliers have predictably priced their standard tariffs either at or within a pound of the cap. Here's the detail:
- If you have a credit meter... British Gas, E.on, EDF and Scottish Power have all hiked the price of their standard tariffs to the max allowed under the new cap – £1,277/yr on typical use, a rise of £139/yr on average. SSE has increased prices to just under the cap, at £1,276/yr.
- If you have a prepayment meter... British Gas, E.on, EDF and Scottish Power have hiked standard prices to the max allowed under the separate prepayment price cap – £1,309/yr on typical use. SSE has raised prices to just under the cap, at £1,306/yr.
There are no savings to be had for those on credit meters due to the dire state of the market. Bizarrely, there is still one very cheap prepayment deal available from Ebico Living. It's a massive outlier, much cheaper than anything else, but it could save someone on the new prepay price cap about £250/yr. It's a variable though, so this could change at any time. Do a prepayment comparison to check it's cheap for you.
How does Ofgem's energy 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).
As the cap limits the price providers can charge for 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.
The new 1 October price cap is based on average wholesale prices for the six months until the end of July. Yet the wholesale price has exploded since then. We're now a third through the next assessment period (Aug - Jan), which determines the cap from April 2022, which is why analysts at Cornwall Insight predict a 14% jump.
In fact, for prices not to rise in April, wholesale rates for the final four months of the assessment period would need to drop to roughly the lows of the pandemic. Yet many analysts think they're staying high for now.
Struggling to pay your bill? There's lots of additional help available right now
Emergency measures put in place to help people struggling with bills due to coronavirus are still ongoing. Most importantly, your supply won't be cut off – disconnections of standard credit meters have been suspended, while prepayment customers can get emergency or additional credit to ensure the lights stay on.
There are also a range of options suppliers can offer if you are struggling, including full payment plan reviews, affordable debt repayment plans, payment breaks or reductions, allowing you more time to pay, and access to hardship funds. This is all done on a case-by-case basis, so contact your supplier as soon as you can if you do start to struggle.
There are also a range of energy grants to help those on certain benefits with winter bills. For full info, see our Housing & energy grants guide, or check Ofgem's website for a full rundown of what's available and what to do if you're having difficulty paying. Those on lower incomes may also be able to apply for £140 towards bills via the 2021/22 warm home discount.
Plus, most people waste energy. We know wearing jumpers, lowering thermostats and not leaving electricals on standby will help, but we don't always do it. Answers to common questions such as 'should you keep the heating on all day, or only have it on when needed?' are in our 18 energy mythbusters guide, and there's more help in top thrifty heat-saving tips.