Martin Lewis: Was the call to DO NOTHING with energy since October right with hindsight?
Were households right to follow MoneySavingExpert.com founder Martin Lewis's "do nothing" energy mantra and stick with the price cap since October 2021? Martin answers this question in his new video on the energy crisis below, as well as explaining what might be next for energy bills.
Update Wed 2 Feb: The six-month assessment period for the new April price cap (to be announced tomorrow, 3 February) closed on Monday (31 January). Analysts at Cornwall Insight have made an updated prediction, which is a touch lower, but still an awful, 49% rise.
Subtitles are available for the video above by clicking on the closed captions icon in the bottom right-hand corner. Plus...
Here's the full transcript of Martin's thoughts on energy fixing
"Martin Lewis from MoneySavingExpert.com here – I want to bash out a quick video on whether the advice to do nothing on energy, to stick on the price cap since last October, was correct.
"Now before that [October 2021], helping people on energy was relatively easy: you just let them do a comparison, you showed them the prices, and talked about which the good service, good reputation providers were.
"Then in October, everything changed and since then, if I'm honest, it has been incredibly stressful. I've had some sleepless nights over trying to help people make the right decision because without a crystal ball it's virtually impossible.
"But what I do have right now is the benefit of some hindsight as to whether it was right last October. And the reason I want to do this and talk about this is because it's useful to help you see the lack of information we have now when making the calls and why I always say this is my best guess – I cannot guarantee it'll be right with hindsight.
"So, let's roll back in time to last October. We'd just seen the price cap that the majority of homes are on – anyone who's never switched tariff, anyone whose fix has come to an end, and they've not done anything, anyone whose company has gone bust and they've automatically been moved – go up by 12%.
"But what was extraordinary is for the first time there were no meaningfully cheaper tariffs, and the cheapest fixes you could lock in, instead of saving you lots of money, you would have to pay a substantial premium for."
'I told you to treat the price cap as a six-month fix'
"So, I did say that at the time, all I could give you was a crossed-fingers piece of advice. And that was: treat the price cap as a six-month fix. The price cap is a misnomer – it's not really a cap on your prices, it's a cap more like on the unit rates of energy. And we knew they were locked in until at least the 1 April 2022 so that's a six-month fix.
"And in that time, I said let's hope things get better, cheaper deals come back, and you'll be able to lock in cheaper in the future, so there's no point in paying more now. Well looking back, it hasn't got better, hope didn't materialise, it's got worse and worse and worse.
"So, what does that mean? Well, the first thing to do is to talk you through what's likely to happen over the next year from now because that helps you look back to last October. I'm going to use the typical-use numbers, these are what [energy regulator] Ofgem uses, and I'm going to give you prices based on what a typical user would pay. Of course, if you use more you'll pay more, if you use less, you'll pay less. This at least helps you see the picture.
"Currently the price cap is £1,277 a year. It's estimated that on the 1 April it'll jump around 50% to £1,925 a year – and we're pretty sure of that unless there's Government intervention or Ofgem changes – because the assessment period for that 1 April price cap is the six-month run-up until the end of January and we're nearly there.
"That will then be locked in until 1 October when it'll change again. Now, that 1 October price cap depends on wholesale prices from the start of February until the end of July. We clearly don't know what they are but if they stayed at current rates, we'd expect to see another 20% hike in October. Horrendous, unaffordable, miserable.
"I've talked about the fact we need Government intervention elsewhere. I'm writing a piece about the help people need at the moment, but let's just focus on this issue.
"So, we've got a rough idea of the price – £1,277 a year, then £1,925 a year and then well, it could go up 20%. Things might change, it may not go up 20% in October, but that's what we know.
"So, in early October 2021, the cheapest fixes were about £1,580 a year. By the end of November, they're about £1,850 a year based on typical use. But there was a time, this sort of sweet spot around the beginning of November, when they were around £1,630 a year.
"Now, the reason all this matters is when you fix counts. Because of course the earlier you fixed in October, the more of the relatively cheap current price cap you'll be giving up in order to get your fix."
See the table below for a full list of the cheapest open market fixed deals available between 26 August and 25 November 2021.
|3 September||E.on Next/Sainsbury's Energy||£1,177|
|21 September||British Gas||£1,392|
|22 September||E.on Next/Sainsbury's Energy||£1,427|
|23 September||E.on Next/Sainsbury's Energy||£1,477|
|29 September||Scottish Power||£1,577|
|4 October||British Gas||£1,702|
|11 November||So Energy||£1,635|
|25 November||E.on Next/Sainsbury's Energy||£1,850|
'It's very likely that you were better off doing nothing'
"So, looking back on the numbers, for most of the cheap, cheapest open market fixes – and remember I'm not talking about the most expensive fixes that most companies were offering, I'm talking about the cheapest open market fixes – if we assume that the price cap will be £1,925 a year and it would stay that in October, then it's very likely you were better off doing nothing.
"If we assume that it rises 20% in October, then most people were better off doing nothing but there are certainly some edge cases where you would have been better, probably around 3 November, to have locked in on a cheap fix. But these are edge cases and the savings from that I wouldn't have thought would be very substantial, maybe £10 to £50 a year on typical usage. But again, only if you absolutely timed this right.
"There may have been some existing-customer fixes that were even cheaper – I'm looking at the open market rates – but certainly the savings from fixing, even for the few who would gain from it, would not be that big. But even this is still dependent on some supposition with the 1 April price, and on the 1 October price, and on the assumption the Government won't change things.
"So, to those few people who would have been better if they'd acted and didn't because of me, I'm sorry. I didn't know, I couldn't know. I tried to do everything right, but I can't promise the right answers. And that's the nub of what I want to say here."
'What I want to do now, is move on to where we are right now'
"What I want to do now is move on to where we are right now. One other thing I should have said: it's worth remembering, of course, that staying on the price cap from October to April covers the highest use period. So, it means you were paying on the lowest possible tariff, unless you were on an older cheap fix, during the highest use period and that was a benefit too.
"My main point is for most people it was the right thing but there may be a few who could have slightly, marginally, beaten it a little bit and that's just something we have to understand.
"This is it – the truth is what I'm trying to tell people, the information I'm giving people is about the mainstream, risk-averse, safe options. There'll always be some who can play the market and win, with hindsight one presumes. But it isn't about that. This is about the people going: 'I don't know what to do, I don't understand this', and that's what I'm targeting my info at.
"So, what's my best guess at right now? Having done the numbers, depending on what you assume happens in October and that's the really difficult bit, I wouldn't be looking at fixing now unless I can get a fix that was no more than 40%-ish above the price cap. That's what I'd say. Think of that as a rough number – 40% above the price cap if you want price certainty.
"Now, if you're on a cheap fix now, it's still the price cap that matters because that's the price you'll go to when your cheap fix ends. So, when the cheap fix ends, you'll look at the price cap. And the cheapest open market tariffs right now are around 70% more than the price cap, so you wouldn't really look at those.
"Now I may be persuadable, if someone said to me: 'I really want price certainty and I've got something that's 50% above', well, if we do see a rise in October that may well be a winner in hindsight. So, I certainly might stretch to the 50% mark, but I certainly wouldn't stretch to the 70% mark.
"There are, however, existing-customer fixes, potentially with Octopus, which for some people may be around that 40% to 50% mark and are worth fixing. But again, I've made lots of assumptions here.
'It takes 17 days to do the switch across and that timing is important because of course the nearer we get to the 1 April when prices jump, the less of the current, relatively cheap price you're giving up to move to the 1 April cap. So, if you could get a fix right now that was going to be what we expect the price cap to go to on 1 April, which is about £1,925 a year on typical use, from £1,277 a year, that may well be worth it.
"But again, a lot of this involves assumptions. And I've looked over one year, not three years. If prices were to rocket again. I mean, look, a war in Europe – a war in Ukraine – would be absolutely devastating in every way. But if I just focus on the energy point there. If there were to be war in Ukraine, it's likely one of the tools used in that war would be the price of energy, and we could see gas prices rocket much higher than they are right now.
"In which case locking in even at £2,000 a year right now, if you've got a two to three-year fix, could be a winner with hindsight. But I find it very difficult to say to people to give up a £1,277 a year rate, knowing you're going to £1,900 a year, to lock in at £2,000. I just find that difficult to do. But if you are really, really risk-averse, with hindsight that could well be a winner for you.
"So, what I'm trying to say – I've gone on a lot, sorry for talking so much – my predictions are based on a good, safe strategy. I hope things will improve, but if they don't – with hindsight, and things get worse – there is a chance you could look back and say: 'Ugh, I wish I'd got that fix' – I don't think based on my assumptions it's worth it right now at anything less than 50%, but I can't promise you that, I wish I could.
"It drives me sick and worries me. I normally try and work in areas where I can do the numbers and give you the right answers, but I can't here. We'll do our best, but we can't promise to get it right, but we're going to continue to crunch the numbers for you and give you the best risk-averse answer. Right now, do nothing unless you can get a fix no more than 50% over the price cap."