Martin Lewis: 'Do nothing' with your energy supply and go on to the price cap when your deal ends - there's nothing cheaper available
Do nothing with your energy supply and roll on to the price cap when your deal ends rather than trying to switch. That’s the message from Martin Lewis as the MoneySavingExpert.com founder warns that "inaction is now the best action".
The clip above has been taken from The Martin Lewis Money Show on Thursday 7 October 2021, with the kind permission of ITV Studios. 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.
It's important to understand what the price cap is and who is on it
Speaking on the third episode of this season’s The Martin Lewis Money Show, Martin explained to viewers during his energy crisis Q&A special that one of the reasons why households shouldn't do anything right now is because they're protected by energy regulator Ofgem's price cap, and that there are no deals meaningfully cheaper than this right now.
He explained how the energy price cap works: “This limits the standard variable rate – the default tariff – that firms can charge. Over half the homes in the country are on it and many more are going to be on it." Martin added that you’ll either already be on the price cap or will be automatically put on it if you’ve never switched tariff, your cheap fixed deal ends, or you do nothing.
But Martin said that even with the cap in place there is no maximum limit on the total amount you pay. He explained: "You often hear this £1,277/yr figure - that’s the cap for someone with typical use. If you use more, you pay more." He explained that the best way to think of it is that it is a cap on the cost of each unit of energy you use.
On 1 October, the price cap jumped by 12% (or by 13% for people on prepayment meters). For someone with typical use, the cap was £1,138/yr but that is now £1,277/yr. Martin explained that the current price cap is based on wholesale energy rates - the price suppliers pay for gas and electricity - between February 2021 and July 2021, which did rise.
However, that increase is nothing compared to the projections for next April's cap, which will be based on wholesale prices from August 2021 to January 2022 – a period which has already seen a very steep rise in wholesale rates. And as wholesale prices have continued to rise, it most likely means an even bigger increase from April 2022.
Martin said: "The latest estimate is that on 1 April the price cap will rise by 30% based on the current run rate - so to £1,660/yr on typical use. That means around a £500/yr cost increase compared to a year before. There would have to be an enormous radical change for there not to be a huge increase."
About a year ago, you could lock in to a tariff, on typical use, for about £800/yr. If you came off that deal now you would go automatically on to the price cap at £1,277/yr. However, if you were to go for the cheapest fix on the market now, you'd be paying £1,700/yr - over double the initial cost.
Do nothing - inaction is now the best action
As a result of the fast-changing energy supplier landscape, Martin stressed to households during his show: “Do nothing, do nothing. Energy prices are rising, energy firms are falling. The cheapest firms are £500/yr higher than just a month ago. People are panicking; do nothing... inaction is now the best action."
Martin added: "Two weeks ago I had alternative solutions, now I have no alternate solutions. The answer is there is nothing meaningfully cheaper than the price cap. There are no fixes close to the price cap. The answer for most people is do nothing and go on to the price cap."
The message for households comes as suppliers including Igloo Energy, Symbio Energy and Enstroga have ceased trading in recent weeks. It comes after Martin urged households in the first show of his latest series two weeks ago to take weekly screengrabs of their energy bills as the number of firms going bust keeps increasing and customers may struggle to access their online accounts once a firm has gone under.
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