Watch: Martin Lewis issues stark warning to Tory leadership candidates to act over 'financial time bomb' in video open letter
With the energy price cap now predicted to rise another 65% in October, taking typical bills to a frightening £3,240 a year, MoneySavingExpert.com founder Martin Lewis has warned Conservative Party leadership candidates that they must act as quickly as possible to prevent a "national financial cataclysm".
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 video open letter to Conservative Party leadership candidates
"Hello, I'm Martin Lewis of MoneySavingExpert.com and this is a warning video.
"The winter coming is going to be bleak. I believe, unless action is taken, we are facing a potential national financial cataclysm. As individuals, you need to be aware of that so you can take, if possible (and to be honest, it's not always possible), preventative action yourself.
"Yet more so, the Conservative Party leadership candidates, one of whom will soon become our Prime Minister, need to know how stark things will be on the day they take office. So far, the debate seems to have mostly ignored the fact we are sitting on a financial time bomb that's due to explode in September. And those candidates, in truth, are the only ones with a chance of defusing that catastrophe."
'The competitive energy market we once had is gone'
"But let's focus first on energy. Now, it used to be we had a competitive energy market; you could switch tariff or switch firm to save quite a substantial amount. But that's gone. There's virtually no competition now.
"We have regulated pricing in the main by dint of Ofgem's price cap. Now, that isn't an absolute cap on what you pay for energy; what you pay depends on what you use: if you use more, you pay more. Instead, every six months, and soon to be every three months, there is a cap on the unit rates and standing charges of gas and electricity if you are on a standard variable tariff, which most people are.
"And what's crucial to understand is the future price cap rate is mostly predictable because it's dictated by the algorithm that has been published by the regulator Ofgem. And that is based mainly on the year ahead wholesale prices, which we also know (there are different types of wholesale rates so just be careful on that)."
'Energy bills for someone on typical use are predicted to rise to a sickening £3,240/year from October'
"Now, the wholesale rates that count have, I'm afraid, spiked again in recent weeks. And for predicting the price cap, I use the analysts Cornwall Insight – and their latest predictions are frightening. Remember, in April, the price cap went up 54%, taking somebody on typical use to £1,971 a year.
"Now, typical use is just my way of showing you the scale of prices. Everything is different. So, for individuals, focus on the per cent, but for society, we can look at the typical use figures.
"On the first of October – and this is a strong prediction because the October cap is based on wholesale prices from February to mid-August, so we're most of the way through that – the awful, sickening news is that it's now predicted to rise 65% again, taking the bill for somebody on typical use to £3,240 a year. And that may be a conservative estimate because it keeps going up.
"Now, we'll know the exact number by the end of August. And that means that on the fifth of September, when our new Prime Minister is scheduled to take office, the direct debits will already be increasing by 65%. Someone who pays £100 a month now will start to pay £165 a month. Somebody who pays £200 a month now will start to pay £330 a month.
"And it doesn't end there. The price cap on 1 January is likely to go up 4% (although this is not quite as strong a prediction), taking the bill to £3,360 a year for someone on typical use. Then in April (and we are getting into crystal ball territory), when it was thought we might start to see prices dropping – no; now the prediction is they'll stay flat or only drop a few per cent.
"Meaning next April we'll still be paying on typical use over £1,000 a year more than we are now."
'£400 help announced by former Chancellor has already been swallowed up'
"To put that into perspective, that means from October, typical energy bills will cost over a third of the new state pension and more than a third of the old state pension. Well, it's just not affordable. And remember, the £400 reduction that is due to come off all bills in October – it was announced in May by the former Chancellor and Conservative leadership candidate, Rishi Sunak – well, that help has already been swallowed up.
"The increase in the prediction from when that was set in May – then, they thought October would be £2,800. Now we're looking at £3,250. That £400 has gone, just by the increase in the prediction alone.
"Of course, on top of that, there's more money available for those on means-tested benefits, those on the state pension, and people with disabilities. Yet the amounts being given were all based on where we were back in May. And that is not enough now. Remember that direct debits will be rising before the new Prime Minister is in situ. And that means people will be panicking – there's a risk to mental as well as physical health."
'These rises are unaffordable for many – we will need warm spaces this winter'
"These rises are unaffordable for many on the lowest incomes. And while tax cuts will help some people (I'll leave the inflationary risk to others), for those at the bottom end of universal credit and many state pensioners, the rises, when added to the increasing costs of food and transport and other inflation means they'll be back to that choice between starving and freezing.
"This winter, we're going to need warm spaces. Public buildings, local councils, universities and libraries will need to open their doors and invite people in to keep warm because they can't afford to put their own heating on.
"And to the Conservative Party candidates, you need to understand the level of feeling out there. When I've talked about this on social media, and I have a decent following, and people's eyes are opened, the biggest response is actually people suggesting civil unrest, primarily in the form of mass non-payment. And I think that unrest is becoming a plausible outcome unless we see you get a handle on this."
'Mortgages: interest rates are up and they're likely to go up more'
"Now, I'm going to move on very quickly to a couple of other topics because I've gone on quite a lot.
"First of all: mortgages. Of course, interest rates are up and they're likely to go up more. The cheapest fixes back in October were just below 1%. Now they're just below 3%, adding £200 a month to a £200,000 mortgage. Now, many are, of course, protected because they're still on fixed rates, not variable rates. But millions of those are due to end this year, and many more next year.
"My concern is when people try and get that cheapest deal, they must pass an affordability test. And as the cost of living crunch bites, many of those who were just above the limit, hundreds of thousands, or potentially millions of people, will fail. And that will mean they might have to move to their much more expensive standard variable rate. Ironic, isn't it? They can't afford a cheap rate. So how can they afford to pay much more?
"Or some people will just pay a higher rate mortgage, not get the cheapest fix; others will not be able to move lender and will be stuck on their own lender and there'll be no advantage of competition. That's a problem that needs to be addressed – as too is unsecured debt."
'Unsecured debt: we need to mandate much better forbearance measures'
"Right now, debt agencies are already talking about substantial proportions of people who are running deficit budgets. What that means is they've been to a debt counsellor, who's trying to reduce their outgoings to a minimum and even though a professional has looked at it, they still have less income than their minimum expenditure.
"So, it's no surprise, credit card debt is rising. And I suspect after the first of October, it will explode. And an explosion of consumer debt is crippling to individuals and the economy. It means many people just about managing things will turn into people not managing at all.
"We must look at the banks here. Their debt interest rates are going up. But their savings rates are not going up as much. Either that needs to be fixed, or we need to mandate much better forbearance measures for those in the worst type of debts."
'Cost of living has to be at the front and centre of the debate – without more action lives could be lost'
"And there's much more I could talk about. The explosion of buy now, pay later and the fact that won't be regulated now until 2023 after the hardcore cost of living crisis, petrol prices, the lack of regulation on heating oil and LPG [liquefied petroleum gas], the food prices in the shops.
"But hopefully the picture I've painted sets the scene of what's coming. And remember too, it's all very well to talk about inflation dropping, but that doesn't mean prices will go down or back to where they were. All it means is they'll stop rising as quickly.
"To individuals listening to this, if you've got financial room to manoeuvre, you need to be battening down the hatches now. Redoing budgets and being prepared to use savings.
"But as a nation, we have a problem with financial capability and financial resilience. And to that, to weather the coming storm, I speak directly to those candidates: this cost of living issue needs to be at the front and centre of the debate. More intervention and action is needed and it needs to be quick. This is a hard deadline coming. Without more action, I worry lives could be lost."