Martin Lewis: Do you pay energy by monthly direct debit? Three urgent must-knows before 1 April
On Friday 1 April, the harsh reality of the huge energy price hikes will be felt by millions of people. As we've been warning for months, the energy price cap will rise by an average 54%, and the vast majority of people will see their bills soar. Here, MoneySavingExpert.com founder Martin Lewis provides his latest energy briefing for those that pay by direct debit in a video (with transcript).
Included in Martin's analysis is:
- Why you should take a meter reading on Thursday 31 March (Update: Many firms' websites have crashed as customers have rushed to submit meter readings – see Martin's new video update).
- Why you should be careful if you're thinking of ditching your direct debit.
- And crucially, Martin's BEST GUESS of who should and shouldn't fix.
Pay for your energy via a prepayment meter? Watch Martin's latest video for prepay energy customers and see whether you should top up in advance of the Friday 1 April price hikes. And if you're worried about paying for energy, see our Struggling to pay energy bills? help.
You can turn on subtitles by selecting the closed captions icon at the bottom right of the video.
Here's a full transcript of Martin's three energy need-to-knows before Friday 1 April and his best guess on whether households should fix
"Hello, I'm Martin Lewis from MoneySavingExpert.com (MSE) and this is a video with three urgent need-to-knows for anyone who pays their energy bills by monthly direct debit – which is the vast majority of people in England, Scotland and Wales (if you pay by prepayment, I've done a separate video for you, so please watch that instead).
"Now, as I'm sure you know, on 1 April we're going to see enormous rises for most people in energy bills because the price cap is due to rise by an average of 54%, and that is just hideous.
"Now, you're on a tariff that is governed by the price cap if you have never switched, or if you were on a cheap fix and it ended and you didn't fix again, or you were with a company that went bust and you were automatically ported to a new company. That is the vast majority of people in the country. If you're on a cheap fix, what I'm about to say does not apply to you."
1. 'Before we get to 1 April, do a meter reading'
"So the first thing. Before we get to 1 April, preferably on the 31 March, do a meter reading and send it to the company. Why? Because then you are drawing a line in the sand that says to them: 'All the energy I have used until this point should be charged at the cheap rate. Do not estimate my usage, I am locking it down so you cannot charge me any more than the amount I've actually used from 1 April onwards'.
"Some people might be saying: 'Why don't I make that just a little bit higher than it really is, so some of my April usage would be at the cheap March rate?' Well, the answer is because that's fraud, so don't do it."
2. 'If you're thinking of ditching your direct debit, it may cost you more'
"Next, I know that many people are thinking of ditching direct debits at the moment, because they want to control what they're going to pay by having a bill that comes in and then paying it on the back end rather than dealing with estimates of usage.
"I gave evidence the other day to Parliament saying I do believe some energy companies are artificially inflating direct debits, by far more than the 54% increase in the price cap to aid their cash flow and that needs to be cracked down on.
"I've done a separate video on what to do if your direct debit is going up by more than 54%. You can find it on any of my social media feeds and it's also available on MSE, so please do watch that if you're affected by it.
"But if you're thinking of ditching your direct debit, I do need to make you aware of something. While you may gain control, it will cost you more.
"Now, the numbers I'm about to give you are for someone on typical usage. Of course, if you use more or if you use less, it changes in rough proportion, but I thought it would help you to just get an idea of the difference.
"If you're on typical usage, the price cap from 1 April – for somebody paying by direct debit – is £1,971 a year. If you pay by prepayment, it's £2,017 a year, but of course you'd need a prepayment meter for that. If you want to pay by quarterly bills, and that's what most people ditching direct debit tell me they're thinking of doing, then the price cap is £2,100. So that means you're paying over 6% more for the same usage than you do by direct debit, because there is a discount allowed for direct debit.
"So while you might have more control in the short term, over the longer period, ditching monthly direct debit means you will pay more for your energy, about 6% more, taking that increase from 54% to well over 60%. I can't tell you what to do, but if you can cope with the direct debit, it is cheaper to do so."
3. 'The cheapest open market fix right now is around 40% more than the April price cap'
"My third point, and this is the one everybody always asked me about, should you be fixing right now? So, let's go through what the situation is over the next year. I'm going to do this based on typical usage, even though the truth is the price cap is not a cap on the amount of money that you pay, it is just a cap on the unit rates for gas, electricity and the standing charge.
"But doing it by typical usage gives you an idea. I'll also talk percentages, which were actually more helpful. So from 1 April, until the end of September, you will be paying £1,971 a year on typical usage on the price cap.
"The price cap from October – which is due to last six months, although they are consulting on changing that, so it could change – is based on wholesale energy prices between 1 February and the end of July, which means we are effectively two months through the six-month assessment period.
"Based on what has happened so far, and remember that these two months have seen the highest prices for wholesale energy in history – they've come off their peaks a little bit, but they're still extremely high – the current prediction from Cornwall Insight analysts is on 1 October, the price cap will rise to around £2,500 a year for somebody on typical use. That's an increase of around 25% to 26%, on top of what it is right now.
"Now, it's worth noting at various times we've seen it (the price cap) predicted to be as high as £3,000 a year, so it has come off a bit, but we're only two months through and the tragic situation in Ukraine could have an impact one way or another, causing it go higher again, or seeing it drop a little.
"I think it would be very unlikely to see October's price cap be lower than the April price cap, because we've already had two months of such high prices. We would need, you know, a worldwide economic collapse type-thing to see the remaining four months bring that price down to below where it is in April."
'With the lay of the land as it is, it's not worth fixing'
"So that's the rough estimate, £1,971 a year now to around £2,500 a year in October. A lot of that is crystal ball gazing, but based on that, you would want a fix that is no more than around 18% to 20% above the April price cap before it is worth contemplating fixing – and I factored in the benefit of surety on top of that, not just gone with the maths.
"Well, the cheapest open market deal at the moment is around 40% more than the April price cap, way more, and even existing customer fixes aren't that much cheaper.
"So, with the lay of the land as it is today, it is not worth fixing. You're better off to stay on the April price cap, and then if nothing changes before that, go on to the new October price cap.
"Again, this is my best guess, I do not have certainty or surety here – it is a bit of crystal ball gazing. But if you haven't got a cheap fix so far, I would stick where you are, cross your fingers that wholesale prices come down, which means cheaper fixes will be available in the future, and if not, stick with the price cap.
"In other words, you do nothing, you stay exactly where you are and you just ride it out for the moment. I know it sounds bizarre when we're going up 54% to say 'do nothing', but that's the best possible price right now."
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