Martin Lewis: Huge energy price hikes on 1 April – so is now the time to fix?
Millions of letters from energy firms are dropping on to doormats with the dire news that most people's gas and electricity prices are rising by 54% on Friday 1 April. This is sadly exacerbated by the tragic situation in Ukraine, and the impact of sanctions on Russian gas suppliers. Here, MoneySavingExpert.com founder Martin Lewis provides his latest must-know energy bills crisis briefing in a video (with transcript).
Update Tuesday 29 March: MoneySavingExpert.com founder Martin Lewis has today published a new video where he highlights three need-to-knows ahead of the price cap rise on Friday 1 April: 1) Why you should take a meter reading on Thursday 31 March, 2) Why you should be careful if you're thinking of ditching your direct debit, and 3) Martin's BEST GUESS of who should and shouldn't fix. Watch Martin's latest energy analysis.
Included in Martin's analysis is:
- How to decipher the price hike letters.
- The new unit rates and standing charges taking force on Friday 1 April.
- Why standing charges are increasing by so much.
- How the new price cap rise affects you.
- What will likely happen to prices over the next year.
- And crucially, Martin's BEST GUESS of who should and shouldn't fix.
Energy bills unaffordable? In that case see our struggling to pay energy bills help.
Important update from Martin – Tuesday 15 March: I recorded this video on Monday 28 February yet the pace of change right now is staggering, so that while the logic in the video still applies, many of the product details and some numbers have changed…
- E.on V11 note: The morning after publishing my video (Tuesday 1 March), the E.on V11 existing-customer fix mentioned was replaced by the costlier, but still worthwhile, V12. Then on 8 March, E.on replaced V12 with V13, which is much more expensive – though if you got a letter offering you the V11 or V12 it's worth calling to see if E.on will honour it.
- October's price cap is looking to be much higher: Due to the terrible events in Ukraine, on 2 March 2022 energy analysts at Cornwall Insight issued an emergency update of their prediction. It's now forecasting that the rise in October could be a shocking 47%. That would mean it is worth fixing, if you can, at a price no more than around 25% (was 15%) above April's price cap.
Even that is now looking like a conservative estimate with what has happened to wholesale rates since. I wish I could give a firmer answer but we are in a position of energy uncertainty like none I've seen in my professional memory.
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 best guess on whether households should fix
"Hello, I'm Martin Lewis from MoneySavingExpert.com. This is a video about the continuing energy bill crisis hitting the UK at the moment and now exacerbated by the terrible situation in Ukraine. What I want to do is talk you through the letters that millions of you are getting about the huge, horrifying increase in energy prices coming on 1 April with a price cap rise. Then, I want to answer the question I'm being asked by everyone: 'Should you be looking into a fix right now?'
"So, first of all, the background. For the last year, we have seen an explosion in wholesale gas prices, which are the prices that energy firms pay for gas. Because so much of the UK's electricity is generated by gas, electricity is hit too.
"Right now, rates are about five times what they used to be. The price cap coming in on 1 April is based on the wholesale prices between the beginning of August last year and the end of January this year. Now we know what's going to happen: the cap is going to rise by around 54% on average, although there is slight regional variation.
"Now, who is on the price cap? Well, you're on the price cap if you've never switched tariff, you were on a cheap fix and that cheap fix ended and you didn't switch again, or you were with a supplier that's gone bust and you've been moved – as millions of people have – to a 'supplier of last resort'. So altogether that means right now the vast majority of homes in the UK are on a price-capped tariff.
"Some of you might be lucky enough to still be on a cheap fix from before this all happened. If so, just stick with it for as long as you can, because energy prices have increased so much that you'll be paying way below what you'd be paying if you moved anywhere else. Even the idea of moving quickly to try and bag a bargain is just not worth it, so stick on your cheap fix for now. However, when it ends, the logic of what I'm about to say will apply."
'The price cap is actually a cap on the unit rates and standing charges we pay'
"I'm going to talk about prices for direct debit customers, but if you're not on direct debit, however you pay, the logic I'm talking about still applies, but I'm just going to use direct debit prices as an example.
"So I talked about the price cap, but it isn't really a cap on the total amount that you can pay for energy, as there's no maximum number. The price cap is a cap on the unit rates and standing charges we pay for gas and electricity.
"For gas, first of all, we're seeing a big rise, an almost doubling of the unit rate – which is the rate you pay for the amount of energy you use – which is going from 4.1p to 7.4p a unit. The standing charge, which is the amount you pay per day just for having a gas supply, is increasing slightly from 26.1p a day to 27.2p a day.
"For electricity, there's a big (but not as big as gas) jump in the unit rate, which is going from 21p to 28p a unit. However, the standing charge is nearly doubling from 25p a day to 45p a day.
"Lots of people have been asking me why the standing charge is going up by so much, so I asked the regulator Ofgem, which said it reflects the big increases in fixed charges, which are being put into the standing charge. So, for example, about half the cost of moving people whose supplier went bust to 'suppliers of last resort' is going into the standing charge.
"There are fixed network costs, there are policy increases in the cost of the green levy (so the cost of supplying green energy even if you don't have green energy yourself) and the cost of the warm home discount. So when you see the letter from your energy company, and you see the massive rise in the standing charge, that's because the price cap standing charge for electricity has gone up so much.
"Now of course, this is a price cap. So firms don't have to go as high as the cap; they can go lower. But all of the big players, unsurprisingly, have announced their new 1 April prices for their variable rates and their price cap tariffs are at, or at least are not meaningfully cheaper than, the price cap. So expect to see a 54% rise in what you pay on 1 April."
'On 1 October you can expect to see a 24% rise on top of the coming 1 April rise'
"This brings me to the next issue, the big question: Should you be looking into a fixed tariff right now?
"Well, just to recap what we know so far, on 1 April, we're going to see a 54% rise in the price cap. So, for someone with typical usage, just as an example to give you the scale of magnitude, this means their bill is rising from £1,277 a year to £1,971 a year.
"That price cap will last until 1 October and then it will be changed based on the wholesale energy rates from the beginning of February until the end of this July, so we're already one month through that six-month assessment period and prices are already high, especially because of the current situation between Russia and Ukraine.
"So the latest analysis I've heard from Cornwall Insight [energy market analysts], who I tend to think of as the most reliable on this, is on 1 October, you can expect to see a 24% rise on top of the coming 1 April rise, which could push prices up to £2,450 a year.
"This is, of course, still uncertain. We're only one month through the six-month period and there is a consultation out that the next price cap period might be shorter, that it might not last from 1 October until the end of March, that it might be a three-month price cap period. But that's all under consultation, so we'll stick with what we know so far."
'The big question: Should you be looking into a fixed tariff right now?'
"So the big question, of course bearing all that in mind, is at what rate is it worth getting a cheap fix? The rule of thumb is this: I would not switch to a fixed deal unless it was less than 75% more than the current price cap, or if you want to base it on the April price cap, no more than 15% more than the April price cap.
"So if you can find a fix within that price range then it is worth getting. But you will not find those prices on a comparison site. There are no open market options close to that price – they're all 40% more than the April price cap at the very cheapest.
"But there are some existing-customer deals – where firms offer their existing customers cheap fixes – within that range. The big one is the E.on Online Version 11 (V11) one-year fix, also for E.on Next customers, which is set at the April price cap. [Update Tuesday 15 March: The morning after publishing my video (Tuesday 1 March), the E.on V11 existing customer fix mentioned was replaced by the costlier, but still worthwhile, V12. Then on 8 March, E.on replaced V12 with V13, which is much more expensive - though if you got a letter offering you the V11 or V12 it's worth calling to see if E.on will honour it.]
"So, knowing that we think it's going to go up in October (it's certainly not going to drop in October; it's definitely going to go up; we don't know by how much, but the current estimate is 24%), if you can get a one-year fix at the April price cap, that isn't just like walking along and suddenly discovering a gorgeous chocolate lake, it's walking along and discovering a chocolate lake that's calorie-free and you can eat as much as you like.
"If you're looking to compare elsewhere, do be careful that you're comparing preferably on the unit rates, if not, the same usage. If you were switching to another company, it might offer you a cheaper rate but that could be because it's estimating your direct debit to be lower.
"Some people are saying: 'Should I get a longer fix?' Well, not if it's a big price premium, because the current predictions are in April 2023, prices will drop from the October price hike again, but it's very, very uncertain. But if you want price certainty and you're willing to pay a little bit more in the short term, just in case prices continue to explode, I don't think it's a bad decision, I just can't tell you it's the right move.
"So, just let me recap: over the next year, if you can get a fix that is no more than 15% above the April price cap, which is the same as saying no more than around 75% above the current price cap, then it's worth fixing. Otherwise probably not, although if it's within a few percentage of that and you really want certainty, go for it. But I wouldn't be fixing at 40% more than the April price cap rates.
"Some people have said to me: 'Hold on, shouldn't I have fixed earlier?' Well, just because fixes were slightly cheaper earlier, remember you would have had to give up the current, much, much cheaper price cap that lasts until the end of March. Hope that helps."