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

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

Watch Martin's video explainer below, filmed just after Ofgem's announcement on Thursday 23 November. You can also use our 'What you'll pay from January' calculator to see how the new Price Cap will affect you.

How is the Price Cap changing?

The Price Cap changes every three months and has fallen in recent months. However, from January, the Price Cap will once again rise, due to increases in the international wholesale energy market due to market instability and global events, particularly the conflict in Ukraine. 

From 1 January 2024, the Cap will be set at an average £1,928 a year for a typical dual-fuel household paying by direct debit, affecting all those on standard variable tariffs (essentially everyone not currently on a fix). If you pay on receipt of a bill, prices are also set to rise by about 5% to £2,058 a year for a typical home. But remember, it's the rates that are capped, so use more and you pay more.

If you prepay for your energy, the Government will continue to add a small subsidy to prepay rates under the Price Cap after committing to end the prepay premium earlier this year. From 1 January 2024, the Cap for a typical prepayment meter household will be £1,917 a year, which includes a discount on standing charges of 4.5p per day for electricity and 6.7p per day for gas.

If you're struggling, see our full energy bills help guide for info on the all the support currently available.

What are the new unit rates and standing charges from January 2024?

Under the Price Cap, there's no actual cap on what you pay, instead it's a cap on the maximum standing charge and unit rates your provider can charge, so if you use more, you pay more.

You can see the average unit rates and standing charges until Sunday 31 December and what they will be under the Price Cap from Monday 1 January 2024 below. 

Standing charges to remain high

The overall increase in the amount we'll pay under the Price Cap from January next year is driven by higher unit rates as standing charges will not be changing. But standing charges still remain shockingly high, with direct debit households continuing to pay on average £303 a year before they even use any gas or electricity.

MoneySavingExpert.com (MSE) and its founder Martin Lewis have long campaigned for standing charges to be lowered, arguing that they unfairly penalise households on lower incomes and those looking to cut their usage – see Martin's 'Why are energy standing charges so high? What can be done?' blog for more info.

Ofgem has now launched a public review, of these charges, asking bill payers, suppliers, charities and consumer groups for their views on standing charges and how an alternative system could work. 

How does the Price Cap work?

The Price Cap sets a limit on the maximum amount suppliers can charge for each unit of gas and electricity you use, and sets a maximum daily standing charge (what you pay to have your home connected to the grid).

As the Cap limits the price providers can charge for each unit of gas and electricity, if you use more energy, you'll pay more, use less and you'll pay less.

From 1 January 2024, the Price Cap will be set at an average £1,928 a year for a household paying by direct debit, up from the current rate of £1,834 a year based on typical use.

What will happen to prices in the future?

The current predictions are that after the January rise, it'll drop by 6% in April 2024 to £1,816 a year for a typical household, followed by a further drop of 1% in July 2024 to a typical £1,793 a year. It's then predicted go back up by 2% to £1,834 a year in October 2024 – though the further out you go, the more it is crystal-ball gazing. If the predictions are right, it'll still leave people paying close to double what they did before the energy crisis hit in autumn 2021.

Is it worth switching from the Price Cap to a fixed deal?

While fixed deals have been returning to the market in recent months, many deals remain above the current cap, and most are unlikely to be worth it. 

Based on current Price Cap predictions, we reckon it's worth considering a fixed deal if it's priced 1% more than the current October Price Cap, especially if you value certainty over what you'll pay. But it's a complex decision, so for everything you need to think about, see Stick, switch or fix your energy tariff? for a rundown of all the switching options or see our Should you fix your energy? for a full list of the fixed deals available. 

What does Ofgem say?

Ofgem chief executive Jonathan Brearley said: “This is a difficult time for many people, and any increase in bills will be worrying. But this rise – around the levels we saw in August – is a result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay. 

“We are also seeing the return of choice to the market, which is a positive sign and customers could benefit from shopping around with a range of tariffs now available offering the security of a fixed rate or a more flexible deal that tracks below the price cap.  

“People should weigh up all the information, seek independent advice from trusted sources and consider what is most important for them whether that’s the lowest price or the security of a fixed deal.”