Energy price cap to rise in January – your energy rates could change slightly, but it is largely meaningless for your bill
The energy price cap will rise by 20% in January 2023, regulator Ofgem announced this morning – but don't worry, what you pay shouldn't change substantially. While the price cap is set to increase to £4,279/year for a typical household, the Government's energy price guarantee scheme means typical bills will remain at £2,500/year on average until April 2023.
The new energy price cap and energy price guarantee rates have now come into effect – with many facing more substantial increases than expected
The new energy price cap rates and energy price guarantee discount both came into effect on 1 January 2023. While for most, particularly those on direct debit, the changes were minimal, many saw more substantial increases. For a full breakdown by payment type and region, see our Energy prices change from January news story.
What's more, households on Economy 7 (or Eco 10) are seeing disproportionately big hikes, with an average increase of about 7%, based on typical use.
The energy price cap changes every three months and is rising due to the ongoing high price of wholesale energy. However, no one currently pays the full amount under the price cap, as the energy price guarantee – which started on 1 October – gives a discount off these rates to all households. This brings the price for a typical household down to £2,500/year, with the Government offsetting the difference. This will continue in January, so this hike to the cap means a significant increase in the amount the Government will have to subsidise bills by.
But while average prices will remain at the same level, you may see a slight difference in the rates you pay. That's because there are regional differences in Ofgem's price cap rates, which change each time the regulator revises the cap. And as the energy price guarantee is a flat unit rate reduction for everyone, regardless of which region you're in, you might see a small difference to the rates.
We're expecting the exact rates in the coming days, and will update our Energy guarantee rates guide when we have them.
Martin: 'The Jan energy price cap is almost meaningless for consumers' bills'
Commenting on Facebook, Martin said...
Martin's briefing on what's happening with energy bills
Major changes were announced to energy bill support in the Autumn Statement, with the energy price guarantee set to rise to £3,000/year in April 2023 for a typical home, but with support extended until March 2024, plus more info on what cost of living payments will be available next year.
Martin took a detailed look at the current situation, as well as the crucial financial help available, in the latest episode of ITV's The Martin Lewis Money Show Live.
The clip above has been taken from The Martin Lewis Money Show Live, which aired on Tuesday 22 November, with the permission of ITV Studios. All rights reserved. Watch the full episode on the ITV Hub.
What you should be doing now to help yourself
There are no meaningfully cheaper tariffs available, so you can't switch and save right now. Yet there are three areas to focus on...
- Try to cut your energy usage. There are lots of way to easily reduce what you use. Check our 60+ energy savers checklist for pain-free changes, such as turning down your thermostat or tweaking your boiler's flow temperature. Also, see our Heat the human and Energy mythbusters guides for more tips.
- Check you're paying the right amount. You can use our 'Direct debit too high?' calculator to get a good idea if you're paying the right amount.
- Have you got all the help you qualify for? First check you've got the £400 help all households are eligible for – important as some on prepay meters haven't claimed theirs. Plus if you can't pay, check out Struggling to pay – energy help to see if there are any grants.
How the energy price cap and price guarantee work
The energy price cap sets a limit on the maximum amount suppliers can charge customers on standard tariffs for each unit of gas and electricity they use, and sets a maximum daily standing charge (what you pay to have your home connected to the grid).
In October, it was due to rise a massive 80% to £3,549/year on typical use. However, the Government stepped in to limit the increases to energy bills through the energy price guarantee scheme.
The scheme is basically a flat discount on the rates under Ofgem's October price cap. The Government took Ofgem's rates and applied a discount of around 4p per kilowatt hour (kWh) on gas unit rates, and 17p/kWh on electricity unit rates (standing charges remained at Ofgem's planned level), which is paid to the energy suppliers and passed on to households. With this discount, someone on typical use pays £2,500/year, rather than the full £3,549/year under Ofgem's price cap methodology – so the state is essentially subsidising the difference of a typical £1,049/year.
Now that Ofgem's price cap is set to change again in January, the Government will increase the level of the discount, to keep it at a typical £2,500/year. This means the Government will have to subsidise more of the cost.
It's important to note that £2,500/year figure is based on what a 'typical' household would pay over a year. If you use more than that, you pay more (use less, you'll pay less).
We also know that the Government's energy price guarantee will change in April. In the Autumn Statement, the Chancellor announced the level of support on energy bills would be reduced, meaning prices will rise by 20%. So from 1 April 2023, a typical household will pay £3,000/year. This level of support will continue until March 2024.
Should Ofgem's prices fall below the level of the energy price guarantee, the Government has also confirmed that we would pay the lower level.
See our Energy price guarantee need-to-knows for full info and our Energy price guarantee unit rates guide.
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