Energy prices changed for many on Sunday 1 January – for most it's trivial, but some have been hit by more substantial hikes
The new level of the energy price guarantee came into effect from 1 January. While there's little change for most on direct debit, those paying in other ways may pay more. MoneySavingExpert.com founder Martin Lewis has written to the Department for Business, Energy and Industrial Strategy, especially over the increase for many of the nation's poorest.
What's happening? The technicals (or jump below to find the actual impact on you)
While it's no longer relevant to the price we pay, because consumer bills are based on the energy price guarantee, regulator Ofgem still calculates the underlying rates of the old energy price cap system every three months (based on wholesale prices). And in January, it rose by 20% to £4,279/year for a typical household, from its previous level of £3,549/year.
The energy price guarantee, which started on 1 October, is then a state subsidy to reduce this to the announced level, bringing down typical bills to £2,500/year, with the Government offsetting the difference.
With the price cap rising, and the price guarantee static, the Government needed to increase the level of support to keep bills at a typical £2,500/year. From January, the discount it applies will be 31.8p per kilowatt hour (kWh) for electricity (up from 17p/kWh), and 6.4p/kWh for gas (up from 4.2p/kWh).
However, while the aim of the energy price guarantee is to keep typical bills for someone paying by direct debit to about £2,500/year until 31 March 2023, the changes to the underlying price cap from Ofgem and the amount of the discount mean that most people's bills will have changed slightly.
Prepayment meter customers, and those paying on receipt of a bill face higher increases than those on direct debit. However, since we looked at this, it came to light that households on Economy 7 are facing disproportionately big hikes. The MSE team and Martin (as well as some energy firms) are pushing for change as it doesn't seem fair, but the door seems shut - see Economy 7 price rises for more info.
The energy price guarantee will then change again in April. In the Autumn Statement, the Chancellor announced the price guarantee would be extended until March 2024, but the level of support would be reduced, meaning a much more substantial price rise of 20%. So from 1 April 2023, a typical household paying by monthly direct debit will pay £3,000/year.
Martin: For most people the change will be trivial, but it is disappointing to see more substantial increases
Martin said: "The energy price guarantee was meant to guarantee prices until the end of March (when we know the cost people pay will increase by 20%). So it will come as a surprise to many to see prices change in January.
"For most people the change will be trivial, but it is disappointing to see more substantial increases, with some on prepay meters seeing rises of 1%, which include most of the poorest in society. I have already been in touch with the Department for Business, Energy and Industrial Strategy to ask if this can be looked at, as it does not seem fair.
"The bump up for those who pay in receipt of bills takes the premium for paying that way to more than 10% over direct debit – so while many like the extra control, it's important to be aware that with typical bills from January you'll pay £260 a year for it."
How prices are changing – region by region
What you pay under the energy price guarantee depends on how much you use, which region you're in and how you pay for your energy. We've a full regional breakdown of average energy prices below, but if you want to see the actual rates where you are, see our Energy price guarantee unit rates guide.
What you pay also depends on your supplier – the price cap and energy price guarantee set a maximum unit rate and standing charge providers can charge. It's possible some suppliers will charge less than this maximum. Ovo, for example, has told us it will not pass on the January increases for those paying by monthly direct debit (provided you're not on Economy 7 or similar) and prepayment. E.on has also said it won't pass on changes for those on prepayment, while Octopus said it will absorb most of the increases. We're checking what other suppliers are doing, and will update this story with more info.
On average, there'll be no change in January for those paying by direct debit. However, for those on prepay it's a £20/year increase on average and £39/year rise for those who pay on receipt of bills.
On Economy 7? It's much harder to get average and regional pricing for Economy 7, but from the rates we've seen from some of the bigger providers, it looks like Economy 7 households are facing a roughly 7% rise on average. See Economy 7 price rises for more info.
| Current annual cost | Cost from 1 January(% change on current price) |
|---|---|---|
Monthly direct debit | £2,500 | £2,500(0%) |
Prepayment | £2,559 | £2,579 (+0.8%) |
Pay on receipt of bill | £2,715 | £2,754 (+1.4%) |
Based on Ofgem's typical use of 2,900kWh of electricity and 12,000kWh of gas.
Our full regional breakdown of the energy price guarantee from 1 January 2023 is based on typical use (if you use more, you'll pay more), and shows the percentage increase against the current annual cost.
Region | Monthly direct debit: Annual cost(% change on current price) | Prepayment: Annual cost (% change on current price) | Pay on receipt of bill:Annual cost (% change on current price) |
|---|---|---|---|
North West | £2,468(-0.2%) | £2,546(+0.6%) | £2,720(+1.3%) |
North England | £2,434(-0.5%) | £2,519(+0.4%) | £2,684(+1%) |
Yorkshire | £2,472(0%) | £2,554(+0.8%) | £2,724(+1.4%) |
North Scotland | £2,474(-0.3%) | £2,555(+0.4%) | £2,726(+1.1%) |
South England | £2,515(+0.1%) | £2,593(+0.8%) | £2,769(+1.5%) |
Southern Scotland | £2,506(+0.1%) | £2,586(+1%) | £2,760(+1.6%) |
North Wales and Merseyside | £2,579(+0.5%) | £2,655(+1.3%) | £2,838(+1.9%) |
London | £2,533(+0.3%) | £2,609(+1%) | £2,788(+1.7%) |
South East | £2,522(+0.1%) | £2,600(+0.9%) | £2,777(+1.5%) |
East England | £2,502(+0.1%) | £2,585(+0.9%) | £2,756(+1.5%) |
East Midlands | £2,451(-0.2%) | £2,532(+0.6%) | £2,702(+1.2%) |
Midlands | £2,504(+0.1%) | £2,582(+0.9%) | £2,759(+1.6%) |
South West England | £2,524(-0.2%) | £2,606(+0.6%) | £2,780(+1.2%) |
South Wales | £2,516(0%) | £2,589(+0.8%) | £2,771(+1.4%) |
Based on Ofgem's typical use of 2,900kWh of electricity and 12,000kWh of gas. You can find your region by entering your postcode at EnergyBrokers.co.uk.
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 ways 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
Martin explained how the price cap and energy price guarantee work shortly before Ofgem announced the new cap level in November...
What does the Government say?
Responding to Martin's question on the changes, Grant Shapps, Secretary of State for Business, Energy and Industrial Strategy, said: "As you say this is marginal for most people. You know we keep government support under review at all times, but changes to bills here are about the way the price cap operates to reflect cost to serve, rather than related to the energy price guarantee.
"We acknowledge the way the energy price guarantee and the energy price cap interact isn't perfect, but it's right we move quickly to support people this winter.
"The energy price guarantee will keep bills at around £2,500 for a typical household this winter and we're grateful to you for continuing to make that clear."
Share this guide?
10 September 2024
Clever ways to calculate your finances
