Budget 2023: Energy Price Guarantee to remain at £2,500 in win for Martin Lewis and MSE – here's what it means for your bills

"Hello, I'm Martin Lewis from MoneySavingExpert.com, and I'm pleased to tell you the planned 20% rise in the Energy Price Guarantee, which dictates what bills are for most people in England, Scotland and Wales, has been postponed until July – and postponed in practice means cancelled.

"So, what I want to talk you through here is what it means in practice, in detail, what the new standing charges and unit rates will be, and what's likely to happen to fixing now we know this announcement." 

What's happening to the Energy Price Guarantee

"First though, the backstory. Four weeks ago, I wrote to the Chancellor, a detailed letter, asking him to postpone the April rise until July. I explained that this 20% rise was an act of national harm, likely to be damaging for the economy, damaging for consumer confidence, damaging for business, damaging for consumers' pockets, damaging for people's mental health, and damaging for inflation.

"That letter was backed, I'm delighted to say, by 131 major charities, including National Energy Action, Which?, Citizens Advice, Alzheimer's Society. It was backed by Energy UK, the trade body of the energy retailers. The energy firms, they were also saying this is a no-brainer, don't do it.

"So, I'm very pleased today to say thank you to the Chancellor and the Secretary of State for Energy and the Government for listening to this powerful campaign. This is the right move.

"So what does it actually mean? Well, a postponement means a cancellation. And to explain that, you need to understand there are two rates that for the last year or so have been controlling what we pay on our energy bills.

"For a long time, it was the Energy Price Cap, set by the regulator, Ofgem, based on wholesale rates, the prices that energy firms pay for energy. That was going up and up and up and it was looking very worrying last summer what would be happening coming to the winter, so many people – and I was one of the voices doing this – said 'there needs to be some form of intervention'.

"The intervention the Government chose to do was to introduce the Energy Price Guarantee, which is a subsidy on energy bills. So the difference between the Energy Price Guarantee level and the Energy Price Cap level is paid for by the state.

"Now, I'm going to use typical bills here; a relatively meaningless figure, but it helps me give you the scale of magnitude. Over the winter, for someone on typical bills, the Energy Price Cap would have been over £4,000, but the Energy Price Guarantee was £2,500. And the rule is simple. Whichever of these is lower is what we pay.

"Now, the Energy Price Cap has come down, and the one in April is around £3,200. The Energy Price Guarantee is still £2,500, but it was set to rise to £3,000. So this one was still in play. But because wholesale rates have come down, the current prediction is in July, the Energy Price Cap will drop to around just over £2,000, lower than the Energy Price Guarantee.

"And we will pay the lower of the two, which means the Energy Price Guarantee, which lasts until next April – that's in April 2024 – is no longer relevant from July. Hence the campaign not to put it up temporarily for three months, let the Energy Price Cap take over in July and keep it flat until now, which is what is going to happen.

"So what does that mean for your bills? Well, it means in April, they will stay roughly flat – although I'll detail exact changes on that in a moment. But it is worth remembering at the same time as that was due to go up, we lose the winter bill support. So that's the £400, paid to us as £66, £67 a month to subsidise [our bills], either giving you cash or [money] off your bill or as a voucher to reduce what you pay. And that goes in April.

"So in practice, you will still pay more, just not as much more as you were going to be paying. And especially for those with lower usage where that £66, £67 was a disproportionate boost. Because if you're a lower user, it has a bigger effect. This is going to feel a big loss when you come to April. So you still have to be planning that you're going to need to get that money for that £66, £67 a month increase.

"From July we expect prices to then drop from the current rate. Now the prediction right now is it will drop 19%. There is some crystal-ball gazing in there. Things could vary because that's all based on wholesale rates because we're back on the Price Cap. And then it's likely to stay roughly flat for the rest of the year.

"Once we start to move into next year it really is too difficult right now to look into the crystal ball and see what's predicted to happen. And of course, I need to be honest, if there were big changes, you know, a change to the situation between Ukraine and Russia that could have massive moves on what's going on with those wholesale rates and other worldwide macroeconomic and macropolitical factors could change what happens to those rates.

"So those are predictions; they're not definite for July and October, but I think it's now unlikely that we won't see at least some form of drop on bills in July."

What's happening to the energy rates

"So what are the actual rates going to be? I need to state we have confirmation of the new Price Cap from April but we don't know the new Energy Price Guarantee. Now, the Price Cap tells us the standing charge because the Energy Price Guarantee doesn't change that; the Energy Price Guarantee just subsidises the unit rates that you pay.

"My team and I have tried to work out what these will be. I've also had a few sources that have been helping and when I showed this to the Secretary of State for Energy, Grant Shapps, on my TV show last week, I showed him two predictions; one with the Price Guarantee going up and one without it going up. He said they were in the right ballpark.

"So I'm going to give you them now. But these are not formal, and they could be a little bit wrong. So let's do electricity first, I've only got the direct debit figures, I don't have them for other forms. But this will give you a rough idea of what's going to happen in electricity.

"I know it's a nightmare, and the standing charge is a nightmare, we're likely to see the standing charge rise, well, we know the standing charge will rise again, from 46.4p to 53p a day, you will pay more a day. But because that is rising, the unit rate you pay for electricity will be falling. So that will drop from 34.04p to around 33.2p. For gas, the standing charge is rising again by, not by as much, from 28.5p a day to 29.1p a day, which means we'll see a very slight decrease in the unit rate from 10.33p to around 10.3p.

"I mean for most people, it's roughly the same, there is a slight increase for lower users because the standing charge has gone up and a slight decrease for high users because the unit rate has gone down." 

What's happening to fixed energy deals

"So the last thing on my list to tell you about is the fixing market, what's going to happen there. Well, I think imminently, within the next few weeks, we're going to see the first fixes come back into the market.

"Now, that does not mean you should be jumping at them. Because the big thing here is to understand it's all about the price those fixes are set at; it is going to be a difficult call to make.

"If we just do it on typical use, we're expecting until the end of July, prices to be around £2,500, then for them to drop to £2,000 from July until the end of the year, although there's some crystal-ball gazing in that. So, you're going to want to fix at no more than the current predictions of around £2,150 a year for somebody on typical use.

"That's the scales that we would be looking at. And even then you probably won't save if the predictions are right. But that would at least give you some price certainty that things could not go up. So it will be a difficult call to make exactly when it is, and when it isn't, worth fixing. If I was offered one at £1,800 on typical use, I'd bite your hand off right now, because that gives you price security and it's likely, based on current predictions, to be cheaper.

"But I do think we're going to see fixing coming back. The market may well be very different to what it was before. And I will of course, once they start to come through, be analysing and trying to give you my best guess of whether it is worth it or not for you to fix. But we're a few weeks away from that now.

"Right now, I'm just very pleased that this campaign means that people's bills won't be going up by 20% – though you will still be paying more because you'll no longer have the £66, £67 a month [discount]."