Martin Lewis: What the Energy Price Cap change means for you

Here's a direct transcript of what Martin said, though we've broken it up into sections for ease.

This morning, Ofgem announced its new Price Cap to come in on 1 July

"Hello. I'm Martin Lewis from MoneySavingExpert.com. This morning, the energy regulator Ofgem announced its new Price Cap to come into effect on the 1 July. And this is crucially important for virtually everyone's bills, because it dictates the maximum rates that energy firms can charge for people on their standard tariffs in England, Scotland and Wales. And almost every household is on a standard tariff – pretty much everyone who isn't on a fix.

"So for most people, this directly changes your bill. The good news is the rate is to drop by an average 17%. In other words, for every £100 you currently pay on gas and electricity, from July it will cost you £83. Now, the regulator itself uses this 'typical use' figure, saying it's dropping from £2,500 to £2,074.

"Frankly, that's mostly meaningless because no one's on the typical use, which is why I prefer to talk about it in terms of the percentage drop. But in actual practical terms, it's the maximum rate you can pay that changes. I say maximum – all of them charged the maximum, they could go cheaper, they don't, or they aren't at the moment anyway."

High daily standing charges remain unchanged after 1 July

"Now the bad news is the high daily standing charge that you pay will remain unchanged after the 1st of July. It will continue to be an average of 53p a day for electricity, 29p a day for gas. So in other words, you will pay £300 a year just for having the facility of having gas and electricity. For me, that's a moral hazard.

"It means lower users cannot save much by cutting their usage. It's something I've lobbied the regulator on. No change yet, but there is a consultation there that they put out today that may see that change a little bit in future. What's actually happening to cut the price is the unit rates that you pay are being decreased – an average of 3p per kilowatt hour, meaning electricity will go to 30.1p per kilowatt hour, gas to 7.5p per kilowatt hour.

"Now, the rates I'm talking to you about, these are average direct debit rates. Now, I say average because this is regionalised, and direct debit because different payment methods have different rates. So just see it as a rough example. It will not be exact for you – everywhere is slightly different."

Prepayment meters will see a slightly bigger drop

"I want to talk about prepayment meters for a moment before I move on.  Now, those on prepayment will likely see a slightly bigger drop than 17%. This is because, for the first time on the 1st of July, prepayment meter rates are to be equalised with direct debit rates, some by changing the price caps, some by a small government subsidy.

"Now, we know direct debit is dropping by 17% and we know prepay was slightly higher. So I think that will drop to be equal. My guess is it will be a 19% drop. In other words, for every £100 you top up, now you will only need to top up £81 after the 1st of July. I say I guess, because the exact numbers for prepayment haven't been published yet and probably won't be for another couple of days."

If you're on direct debit, don't expect it to alter quickly

"Direct debit, direct debit. If you're on a direct debit, do not expect it to alter quickly. Most energy firms only change their direct debit assessment a few times a year. It might not even alter by the 1st of July, it depends on when they reassess. If you think you are paying substantially too much, you can get in touch with them and say that, and it's worth doing it.

"If it's too much, you will find, we're just building and updating the numbers right now on MoneySavingExpert and the 'Is My Direct Debit Fair?' calculator, so you can see what the right amount will be, but it's especially worth talking to them if you're very heavily in credit.

"This is the point of the year where you should have the minimum amount of credit.  So if you're heavily in credit now, with rates coming down, you might want to talk to them – make sure you've done a meter reading first – about whether you can have some of that credit back."

Tip for people on a non-smart electricity prepayment meter

"Next quick tip is for people – it's very specific this – on non-smart electricity prepayment meters.

"Because the rate you pay is dictated by the last time you topped up. So if you top up in June, you will still pay the high rate and you will pay that until you top up again. So what I suggest you do is you try and run down your meter – your electricity meter in June – so you're not topping up any more than you need to, and then you do your full top-up on the 1st of July to make sure you're paying the new rates.

"That doesn't work for every one of the meters in that category, but it does work for many of them."

Are fixes going to return to the market? 

"Next question people say to me: Are fixes going to start on the market? Yes, we already know a couple are out there for existing customers right now. Not very many people are being offered them. They're only for very limited numbers.

"But I think we'll start to see certainly more existing customer fixes being offered. In other words, your energy firm will say 'you can fix with us', and maybe some open-market deals. But be very careful. If you look at the price now, because if they give you a comparison to current prices, let's say they say it's 10% cheaper, they'll say it's a saving.  But we know that energy prices, standard tariffs are coming down 17% on the 1st of July.

"So actually, a 10% saving now would mean you pay more. What I would want to see is a fix around the July price, or maybe just a little bit more. If you could get one at that price, so that you will be fixing at the price that's coming in July or a little bit more, then looking at the current predictions from Cornwall Insight who say energy bills will drop a little bit again in October and rise a little bit again in January.

"If you're risk averse and you want to know exactly what you pay, then fixing at the July price would be a good deal – even a little bit above it. But fixing at substantially above it, even if it's cheaper than you pay now, probably wouldn't be worth it. Of course, we'll be doing a lot more work on that when those fixes start being published and assessing the rates individually.  That's just to give you an idea."

The state will no longer be subsidising energy bills

"Final thought. One of the big changes in July is for the first time since last October, the state will no longer be subsidising energy bills. Last October, they brought in the Energy Price Guarantee that said if the Price Cap goes too high, you'll only pay the Energy Price Guarantee and the state will pay the difference.

"And that subsidy has been in place since last October. From July, the Price Cap goes lower than the Energy Price Guarantee, so we pay the lower amount. There is no longer a state subsidy. Now for me, when we know that this winter it is likely people will still be paying more than last winter because you don't get the £66 a month energy support that was available last winter.  And the drop in rates does not make up for that.

"That means that the Government is spending tens of billions of pounds less than it expected to. There is some room for it to do targeted help, and I would say the real issue is the people who are just above getting benefits – those on benefits get cost of living payments. But those just above the benefits level, even a pound above it, get no help whatsoever.

"And £2,000 a year typical bills is a hell of a payment, especially without the £66 support. So if I were in charge, I would be putting targeted support in place for that to happen. But I'm not in charge. We'll have to wait and see if the Government does anything.

"I hope this clears up what's happening for you a little bit."