Martin Lewis: Energy Price Cap to rise 10% in October – who it'll hit hardest, key changes the Government should make and what to do now

Hello, I'm Martin Lewis from MoneySavingExpert.com. News just out.

The Energy Price Cap is to rise 10% on the 1st of October, just at the start of winter.

So this is my instant briefing on who will be hit hardest, why the Government needs to change its plans over Winter Fuel Payments, the new consultation on standing charges and, crucially, what you should be doing right now.

So, first of all, what is the Energy Price Cap?

Well, the regulator Ofgem sets it, it moves every three months and it dictates the maximum amount that firms can charge on their standing charges and unit rates on their standard tariffs.

And those are the tariffs the vast majority of people, over 80% of people in England, Scotland and Wales are on. If you're not sure what tariff you're on you're almost certainly on the standard tariff, so this affects you. This affects what you pay.

Now, there's no total cap on the amount you can pay for gas and electricity. What happens is, well, let's do it with electricity.

The standing charge for electricity on average Direct Debit is to go up to 61p per day. So that's how much you pay each day just for having an electricity meter. That's up 1.4%.

The unit charge, the amount you pay for each kilowatt hour, each unit of electricity you use is going up to 24.5p, so that's up 9.6%.

On gas, the daily charge is going up to 31.66p, that's up 0.8%. And again, the big rise is on the unit charge, the amount you pay for each kilowatt hour of gas you use, which is going up to 6.24p per kilowatt hour, that's up 14%.

Remember, they will vary by the region. So these are just averages.

So what does it mean in practice?

In practice, for every £100 of energy you pay for now, you will pay £110 for from the 1st of October. Though to nuance that slightly, if you're a high user who has gas, it'll probably be more like for every £100 you use now, you'll pay £111/£112, because the unit rate is going up more. And if you're a low user without gas for every £100 you use now, it might be more like you'll pay £105 or £106, but roughly an average of 10%.

Now, the real key here is what happens on the 1st of January when the Price Cap moves again. Well we're currently expecting it to go up slightly, not much, but slightly. So these prices are here to stay. In fact, by this time next year, the current predictions – and they can move, they're not always right – are you'll still be paying more this time next year than you are right now.

So what that means is you need to look and see what tariffs are available out there. And the current cheapest fix on the market is 7% cheaper than the 1st of October Price Cap. And the current predictions are that 1st of October Price Cap, we're likely to be paying around that for the next year.

So if you can lock in, which is what a fix does, it locks in the amount you pay at less than the 1st of October Price Cap, and 7% less is a decent gap, then you will probably save money over the next year if the predictions are right.

Now, just to confuse you, 7% cheaper than the October Price Cap is a couple of percent more than you're paying right now. So actually, if you're looking for a fix, it is worth fixing, even if you're paying more than you are right now.

So what do you do?

Well, the most important thing to remember is the cheapest fix available for you depends on where you live and how much you use. So go into a whole of market comparison, like the MoneySavingExpert Cheap Energy Club that will show you all tariffs by default. And it will also look at the future predictions personally for you, which is worth doing to find your cheapest tariff.

Some people are saying to me: "Why don't I wait till October so I don't pay more in the interim?" Well, the problem with that is we don't know that there'll be fixes available at this price in October. There may be. There may not be. So you're safer to get it sorted now while you know those prices are available, we simply don't know what's going to happen till the prices are fixed. They move very regularly.

Next thing worth talking about is pensioners. So the typical household – I don't like using these figures, but it's an easy way to explain – on typical usage over the six-month winter period this year compared to last winter will pay £100 less for gas and electricity because even though prices are going up now, they've already come down. So there's a saving of around £100 this winter compared to last winter's crisis. And it was defined as a crisis last winter.

But last winter, pensioner households got the £300 cost of living payment and they got the up to £300 Winter Fuel Payment. So £600 of support. This year, there's no cost of living payment. And the Winter Fuel Payment is being means-tested. So most pensioner households will be losing up to £600 of support for a gain of £100 cheaper gas and electricity. That is a real hit and I think it is unsustainable for most households.

Now, my problem with what the Government has done on Winter Fuel Payments. I accept getting rid of universality, millionaires don't need to get the Winter Fuel Payment universality, rather. But I think its eligibility criteria saying only those on Pension Credit, which is for the very poorest pensioners earning less than £12,600 a year, typically, only they will now get the support this year.

Now, first of all, there are 880,000 pensioner households who should be getting Pension Credit but don't claim it. I've been trying to get people to claim it for years. I think that will be very difficult to shift that. So there'll be many missing out who really do need the help, but also £12,600 credit is too low and there are many who are just above the threshold who this is really going to hurt.

So I would call on the Government, and I'm meeting Rachel Reeves in a couple of weeks and I'll be saying this to her in person, to not be quite so narrow on your eligibility criteria. My solution, as it has to be about household income, it's complicated, is we've got precedent on this is to do it based on council tax bands. We did this in May 2022 for energy support and say all pensioner households who either get Pension Credit or in council tax A to D, or it might decide A to C, should get the Winter Fuel Payment. Council tax is imperfect, but workable and a quick way to provide support.

And finally, let's just talk quickly about standing charges. Standing charges are a poll tax on energy bills. You know, you're going to pay £334-odd a year just for the facility of having gas and electricity meters, even if you don't use them. And many people don't use gas in summer, but pay 32p a day just for that facility. I've been campaigning for a long time that that has to change. It is a moral hazard that disincentivises lower users to cut their bills.

Now finally Ofgem is launching a consultation on that. I need to be straight, it's just come out. It's big. I have not read it yet, only the headlines. The headline is it could shift up to £100 off standing charges and put it on the unit rates for gas and electricity, which we always knew it would do that. For me, the £100 isn't big enough but it's a good start, so I do welcome the consultation and I need to read it before I give a full view.

But what we need to do is we need to lower standing charges and we need to make sure that vulnerable high-using homes, say, due to disabilities or illness, are supported by government. I'll be reading the consultation. I'll be going through that. Do have a read of the consultation yourself if you're a bit of a policy wonk, let me know your thoughts.

Lots more information on all of this available on MoneySavingExpert.com.

I hope this quick briefing helped. Thank you.