MSE News

Martin Lewis: 'The Energy Price Cap is down 7% – the good, the bad, and the ugly'

The price households pay for gas and electricity will fall by 7% on average from 1 July as energy regulator Ofgem has announced the latest Energy Price Cap rates. Yet despite this, energy bills remain much higher than before the energy crisis hit. We've full info below.

Martin Lewis: 'The Energy Price Cap is down 7% – the good, the bad, and the ugly'

Watch MoneySavingExpert.com (MSE) founder Martin Lewis's video explainer below, filmed just after Ofgem's announcement on Friday 24 May 2024. You can also use our 'What you'll pay from 1 July' calculator to see how the new Price Cap will affect you.

Embedded YouTube Video
  • Full transcript of what Martin said in his video

    Hello, I'm Martin Lewis from MoneySavingExpert.com and this is your Energy Price Cap news briefing. The good, the bad and the ugly. Let's start with the good news, though. It's been announced that the Energy Price Cap is to drop 7% on 1 July. The Price Cap lasts three months, so that's July’s, August’s and September's figure. It is a price cut.

    Now the Energy Price Cap is set by Ofgem, the regulator, and it dictates the maximum amount that firms can charge on their standard tariffs. Now, 80% of those in England, Scotland and Wales are on standard tariffs. Unless you know you're on a fixed or special tariff, you're likely on the standard tariff – so your price is likely dictated by the Price Cap.

    It's called a Cap, but pretty much every company sets it up the maximum, so it's really the regulator fixing the price that you pay. And it's going to come down by 7% on 1 July. Now some people use the typical use figure – I think that's a nonsense because what is a typical user? Virtually nobody uses the typical amount.

    So here's how I like to explain it. For every £100 that you pay for energy now, if on the same use, you're going to pay £93 for on 1 July. That's the good news. The bad news: The way they’re bringing the price down is by lowering the unit rates for gas and electricity –  the amount you pay for each kilowatt hour of gas and electricity used is coming down by around 9%.

    I say around because it depends on exactly how you pay your bills and which region of the country you're in, but roughly 9%. The standing charge, the much-despised standing charge, is unchanged. So you will continue to pay around 90p a day just for having the facility of gas and electricity, even if you don't use it.

    And that's particularly nasty in the summer period because there are many households, especially with older people in, who only use their gas for central heating, and that's turned off during the summer, but they're still having to pay 30p a day standing charge just for the facility of having gas.

    Now, I've long complained and campaigned to bring the standing charge down and shift some of the fixed cost to the unit rate. That has not been done yet. I know many people hate the standing charge. It is a moral hazard. It means that people at the lower end don't get as much reduction when they cut their usage to cut their bills. It also means in July, the people who’ll get the biggest benefit are the higher users because they get a bigger gain of the unit rate dropping.

    But that's the way it works. Now, I've lobbied the Secretary of State for Energy. I've spoken to Rachel Reeves about it, I've spoken to Ofgem many times, and we are due a consultation report on the standing charge this summer. My fingers are crossed they'll bring it down.

    But there is a problem that it takes government to protect vulnerable high users, and Ofgem may not bring the standing charge down because it doesn't have the power to protect those vulnerable high users. Anyway, that's a story for another day.

    Let's do the ugly, shall we? The ugly: The new prediction from Cornwall Insight, who tend to be very good analysts on this, is that the energy Price Cap from October will rise 12%. Now we're only one week through the three-month assessment period of that, so things could change. But they are also looking ahead and forecasting what's happening in the wholesale market.

    So I think that probably this July Price Cap fall is the last fall we'll see for a while. Not much of a surprise that an election has been called i this was in the coming, wasn't it? We're just about to announce a price cut. If you leave it much longer, people will be talking about a price rise in energy and that would factor into inflation.

    So to put it in perspective, for every £100 you pay on energy right now, in July you'll pay £93. And if Cornwall Insight is correct, and of course it's a crystal ball prediction, you'll pay £104 from October. So it will go up and then it'll be roughly the same next January. So the summer, it goes down, winter it goes up. That is, of course, a frustration.

    What does that mean for your bills? It means. well actually, if you look on average over the next year, you're probably only talking about your bills reducing from 2% from where they are right now. But you can get fixed rate deals at 9% cheaper than where you are right now. So fixes or the cheapest fixes at least are looking a very good bet.

    Go onto the Cheap Energy Club, we’re the only one who give you a contrast between your Price Cap prediction. So looking at your personal amount you'll pay on the Price Cap versus how much you would pay fixing. Though I have to say, to get these personalised predictions in it's going to take us a couple of days. So the old figures are still in there right now.

    There are other tariffs worth looking at. Octopus has its Agile and Tracker tariffs, which move every day on the tracker and every half hour on the hour on the Agile, based on wholesale prices. They have been very significantly cheaper than the Price Cap in recent times, it is quite a sophisticated tariff though. And of course, there is the risk that if the wholesale rates go up, that they could go up substantially too. So it isn't a no brainer, but for many people there have been big savings.

    So either way, I hope that helps you understand what's going on today. And there's lots more information on MoneySavingExpert.com. That’s your quick briefing.

Here's what MoneySavingExpert.com founder Martin Lewis said about the Energy Price Cap in his instant reaction to the fall on Twitter today:

"News: Price cap down 7%: The good, the bad, the ugly!

  •  "The Good. The Energy Price Cap is to drop an average 7.2% for Direct Debit customers on 1 July, 6.9% for prepay customers, 7.1% for those who pay in receipt of bills. So, roughly for each £100 you pay now, you'll pay £93 from July to September (the Price Cap changes every three months).

  • "The Bad. Standing charges will remain high; they are virtually unchanged. All the cut is via the unit rates. So higher users will see a proportionately bigger cut than lower users. For Direct Debit from July...

    Elec unit rate 22.36p/kWh (down 9% from 24.5p)
    Elec standing charge 60.12p/day (from 60.1p)
    Gas unit rate 5.48p/kWh (down 9% from 6.04p)
    Gas standing charge 31.41p (from 31.43p)

    "Though I hear the standing rate consultation results will be published this 'summer' (whenever that is).

  • "The Ugly. Cornwall Insight has put out its new predictions and they don't make easy reading. If they're right, this is the last fall, and the coming rises are big.

    "On 1 July it's confirmed it drops 7%, so for every £100 paid today you pay £93. Then on 1 October it's predicted to rise 12%, so you'll go back up and be paying £104. Then on 1 January 2025, the crystal ball is saying it'll stay flat (at £104).

    "All this makes the cheapest fixes, which are currently 9% cheaper than than now (so £91 per £100 on the price cap), look a decent bet – you can do a full comparison via the MSE Cheap Energy Club."

How the Price Cap works and what's changing from 1 July

The Energy 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). To see what this means for your bill, use our 'What you'll pay from July' calculator. Or you can use our Cheap Energy Club to compare the cheapest fixed deals.

The Price Cap changes every three months, and is set to fall again from 1 July due to lower wholesale energy prices (what suppliers pay for gas and electricity) in recent months. Here's what the Cap will be set at from 1 July:

  • If you pay by monthly direct debit, it's £1,568 a year on average for a typical dual-fuel household, affecting all those on standard variable tariffs (essentially everyone not currently on a fix). This is a fall of 7%.
  • If you prepay for your energy, prices will fall by 7% to £1,522 a year
  • If you pay on receipt of a bill, it's a 7% drop to £1,668 a year.

But remember, it's the rates that are capped, so use more and you pay more.

There are now fixes that undercut the Price Cap, you can use our Cheap Energy Club to compare the cheapest fixed deals. Or to see what this means for your bill, use our 'What you'll pay from July' calculator.

What are the new unit rates and standing charges from 1 July?

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 30 June and what they will be under the Price Cap from Monday 1 July below. 

Average standing charges and unit rates if you pay by Direct Debit

 

NEW Energy Price Cap

rates from 1 July to 30 September 2024

Current Energy Price Cap

rates from 1 April to 30 June 2024

Gas 

Unit rate: 5.48p per kilowatt hour (kWh)

Standing charge: 31.41p per day

Unit rate: 6.04p per kilowatt hour (kWh)

Standing charge: 31.43p per day

Electricity

Unit rate: 22.36p per kWh

Standing charge: 60.12p per day

Unit rate: 24.50p per kWh

Standing charge: 60.10p per day

Rates and standing charges are averages, which vary by region. Assumes payment by Direct Debit and includes VAT (at 5%). For those who pay each month after getting a bill, it's 6% higher.

Despite the Price Cap falling, standing charges will remain the same from 1 July

The fall in the Price Cap from 1 July is driven by lower unit rates. Standing charges – what we all pay just for the facility of having gas and electricity – will remain at £334 a year for Direct Debit customers. That's what you'll pay before you even use any gas or electricity.

MSE and Martin 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.

In November last year, Ofgem launched a review into these charges, asking bill-payers, suppliers, charities and consumer groups for their views and how an alternative system could work. We've asked Ofgem when we can expect to hear the outcome of this review, and we'll update this story when we have more details.

Predictions suggest the Price Cap will rise from 1 October

The current predictions are that after the 1 July drop, the Energy Price Cap will rise by 12% from 1 October to £1,762 a year for a typical household, and is predicted to remain at around this level until March 2025.

We don't yet have predictions for beyond March 2025 – though the further out you go, the more crystal-ball gazing it is. If the predictions are right, it'll still leave households paying significantly more than before the energy crisis began in October 2021.

Some may want to consider fixing to save

Based on current Price Cap predictions, we think fixing is worth considering if a fixed deal is priced 2% less than the current April Price Cap, especially if you value certainty over what you'll pay. You can use our Cheap Energy Club to get a bespoke comparison, but here are the top deals.

  • You can undercut the Price Cap with E.on Next's Pledge tariff. It promises to remain roughly 3% below the Price Cap for a year (so £50 a year at typical use), so when the Cap drops 7% on 1 July, so too will this tariff. Therefore if you're going to remain on the Price Cap, it's worth considering this option.

  • Ecotricity's Green 1yr fixed is open to new and existing Direct Debit customers, but you must have, or be willing to get, smart meters. It's currently the market's cheapest standalone fix, averaging 9% less than the current April Price Cap, but has £75 per fuel early-exit fees.

  • Existing Octopus customers could consider its Octopus Tracker tariff (if you're not already with Octopus, you can try switching to its standard variable tariff, then switch to this). Its rates change daily based on wholesale costs, meaning it's been substantially cheaper than the Price Cap in recent months.

    Alternatively, Octopus' electricity-only Agile tariff has rates that change half-hourly, based on wholesale prices – good for those who can shift their electricity use out of peak hours.

If you're still on the Price Cap, our Cheap Energy Club comparison will give you a bespoke prediction of what it'll cost you over the next year, so you can compare that with fixing (though our comparison's currently only optimised for dual-fuel price-capped monthly Direct Debit users – we're working on improving that).

Ofgem considering ending ban on new-customer-only deals from 1 October 

In April 2022, energy regulator Ofgem introduced a ban on new-customer only tariffs, preventing energy suppliers from offering tariffs exclusively to new customers, to ensure any discounted deals were also available to existing customers (suppliers have been allowed to continue offering existing-customer-only tariffs). Read our full news story on how Cheap energy deals for switchers could be back.

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