Martin Lewis on what's going to happen to your energy bills in the next few months
Will the Government cancel its planned 20% energy price rise in April and what will the new rates be? MoneySavingExpert.com founder Martin Lewis answers these questions and more in the latest episode of ITV's The Martin Lewis Money Show Live – which also features an interview with Energy Secretary Grant Shapps.
Energy Price Guarantee to remain at £2,500 in win for Martin Lewis and MSE
If has now been confirmed that energy bills will remain at £2,500 a year from April as the Government has heeded ours, and others, calls to postpone the planned 20% rise. The announcement ahead of the Spring Budget follows a month-long campaign led by Martin Lewis, founder of MoneySavingExpert.com, which has been backed by 130 charities and consumer organisations.
ITV's The Martin Lewis Money Show Live – Tuesday 7 March 2023
From The Martin Lewis Money Show Live on Tuesday 7 March 2023, courtesy of ITV. All rights reserved. Watch the full episode on ITVX.
Transcript of what Martin Lewis said on the show…
Here's a direct transcript of what Martin said, though we've broken it up into sections for ease.
The story so far
Martin Lewis: "OK, so here's the story so far. Even in October 2021, wholesale rates – the rates that energy retailers pay for gas and electricity – had gone up.
"And then they rocketed. Some of it due to what's going on in Ukraine, not all of it. But since [then], as you'll see, especially recently, they have come back down again very quickly.
"So you're asking me, why aren't we paying less? Well, we need to take this step by step.
"The next thing to look at is the Energy Price Cap, which you asked me about. Now here it is. It has gone steadily up and up and up. But this line, in April, shows it is starting to come down, though it is still very high [as shown in the graph below].
"Now you may say: 'Well, why is that up there [the Price Cap], when that's down there [wholesale rates].' And that's because the Energy Price Cap, which is set by regulator Ofgem, based on wholesale prices, is time-lagged.
"So, the April Price Cap is based on prices from the 17 November to the 17 February. And if you look here [at the wholesale rates], it was high for quite a period and then it dropped, which is why this [the Price Cap] hasn't dropped as much as many people think it should.
"But the Energy Price Cap is no longer the only thing that dictates what we pay. Because, in October last year, the Energy Price Guarantee was introduced – and that's because prices were going so high that there were people out there, won't mention any names, who were shouting very heavily that something needed to be done, and this was the Government's chosen solution.
"It says we're gonna cap prices lower than the Price Cap, call it the 'Energy Price Guarantee' and the difference is paid for by the state. The Government has organised that the state pays some of everybody's energy bills, whether they need it or not.
"So, the Energy Price Guarantee is set for somebody on typical use – just as an example, relatively meaningless figure, currently at £2,500. But last year, it was announced this April, it would go up by 20%, when we thought wholesale rates would be a lot higher – and that is coming in April, even though we now know it was just announced the Energy Price Cap is coming down."
Why what we pay is going up – even though wholesale rates are coming down
"And that's the perverseness of the situation – what we pay is going up, even though wholesale rates are coming down. It is important to understand that we will pay whichever is lower, the Price Cap or the Guarantee, and look at the prediction for the Price Cap in future.
"Because wholesale rates are going down, in July we're expecting prices to be 20% less than they are now. Finally! I mean, they're still hideously expensive, but they are going to be coming down."
Martin, addressing Energy Secretary Grant Shapps: "So three weeks ago, I wrote to your colleague the Chancellor (Jeremy Hunt) and you, and said: 'Look, why not postpone the rise in the Energy Price Guarantee?'
"If you postpone that rise, and we do this [Martin interacts with the graph in the studio], then we can keep it where it is now, we can protect people from having those letters, and then we know that if you put it up in July, it doesn't actually matter because we're going to be on the lower Price Cap rate.
"So bills are going to come down, and the amount that the Government has saved because it doesn't have to subsidise in future will easily pay for this slight change here."
"That's what I wrote. 110 major charities, including Samaritans, National Energy Action, Alzheimer's, Which?, Citizens Advice, back the letter. Energy UK, which is the energy industry trade body with all the energy retailers, back the letter."
Martin: 'Secretary of State, are you still going to put prices up by 20% in April?'
Energy Secretary Grant Shapps: "So first of all, brilliant charts – love it. And secondly, thank you for everything you've done to explain it – and also to make this case, the Martin Lewis case.
"What I'll say is the Chancellor, tomorrow, a week tomorrow actually, is doing his Budget. And in his Budget, he'll be able to set out the whole financial picture for the year ahead. And I know, because I've been speaking to him about your letter, that we've discussed this.
"We've been very, very careful to – by the way, which you didn't mention, the help that we've been giving through this winter is the equivalent to paying about half of the bill, because it would have gone much, much higher as your graph explains – so we've pitched in with billions of pounds."
Martin: "Are you still putting it up?"
Shapps: "I'm afraid the ultimate answer is, tomorrow week, Wednesday [15 March], you'll get the Budget and you'll get the answer."
Martin: "OK, so let me give you the answer. Forgive me, but on Thursday the energy companies had to tell the prepayment meter companies what their April prices were going to be – and they have not increased the prices in April.
"I also have have other sources that tell me prices are not going up. And since I did that, The Times has reported sources in Government saying prices are [not] going up. And the BBC has reported sources in Government saying prices are [not] going up.
"I would say the level of certainty now is 99% that what's called there, thanks graphics [team], jokingly the 'Martin's Energy Price Guarantee' level is what we're actually going to pay, which means we will continue to stay roughly where we are – more details on that in a moment – and then prices will drop from July. That 20% rise won't happen and, hopefully, that's what will be confirmed next week."
There are no fixed rates on the market right now
Angellica Bell, Martin's co-host: "Before we continue, I wanted to bring in Kelly, who's with us as well, you've got a question for Martin, haven't you?"
Kelly, audience member: "Yeah, we're on a very good fixed rate at the moment with our energy, which is coming to an end in May. Should we try and fix in early before April, or wait and go on a variable rate?"
Martin: "There are no fixed rates on the market at the moment, you cannot fix. Now, I am hearing that there are some companies looking to bring fixes back for the first time.
"To be fair, they're waiting for this announcement until they do it, because that affects the price that they will set fixes. So at some point in May, there may well be fixes. I suspect there will be, but I don't know at what price, and until I know what price, I can't give you any guesstimate of how to analyse it.
"So whatever I'm doing in May – this show isn't on, but I might be on Good Morning Britain, or I'll be on social media – I will put information out. The only tariff worth looking at, at the moment, really is the Octopus 'Agile' tariff.
"Now that's a tariff that charges you every 30 minutes a different rate based on wholesale rates. At the moment, it looks really good, especially if you can shift your usage to the evening or to the night – so you charge your electric car, if you had one of those, at night – it would work well.
"But if wholesale rates were to rise, because it's really quick to move, you could suddenly find it's more expensive. So that's not for everyone.
"But as for your fix, there will be tariffs in May, but I can't tell you yet whether it's worth doing or not.
"OK, let me carry on. Another important bit here. What everyone wants to know, is what are the actual rates we pay going to be."
"Now, gets complicated this. We know what the Price Cap will be in April, that is published. And the Price Cap sets the standing charge. But the unit rate is based on the Guarantee, because that's where the subsidy comes in. Now that has not been published.
"But I and my team have been trying to work it out with some back calculation and some sources – and this is what I think is going to happen.
"So, if there is no 20% rise, then we'll see the standing charge go up. We know that is happening on electricity. And we'll see the unit rate come down, just a little bit. If there is a 20% rise, while standing charges is the same but, of course, the unit rate goes up to a hideous 46p. Yeah, you're shaking your head and you're right.
"On gas, well, actually the standing charge is going up slightly, the unit rate coming down, probably just a tiny little bit if there's no change. And again, there will be a big jump in the unit rate.
"[Speaking to Shapps] I don't suppose there's any chance you can tell me if I'm in the right ballpark?"
Shapps: "Without wishing to announce the Budget, I recognise these numbers – those figures are in the right ballpark, your research is good."
Martin: "So take a photo of that, and those are your unit charges and rates.
For lower energy users, the standing charge will rise and you'll end up paying more as a result
"Now look, let's talk about the impact of this. Lower users, standing charge is going to go up, you'll pay slightly more because of that.
"But the really big hit here, is in April, is also the time that £400 winter payment everyone has been getting goes, the £66, £67 a month [payment]. And that has a big impact on lower users. So look, for someone whose typical bill is £100 a month, pro rata over a year, that means they've been paying £800 a year after the £400 comes off.
"Well, once that goes – and you factor in the standing charge and everything – they go back up to £1,200, so that's a practical rise for them of 50%.
"Someone on £500 a month, they've been paying £5,600 a year. Once that goes [the £400 payment], because the unit cost has come down and the standing charge has gone up, they will pay slightly more – up only 3%.
"So the hit in April is bigger proportionately for lower users, and if I'd done this over a six-month, not a year, calculation, that gap would have widened even further."