Martin Lewis: Energy bills to rise 1% in January as new Price Cap is announced – what it means for you

It's been confirmed today that the energy regulator, Ofgem, is to increase the Price Cap that affects 80% of homes by 1.2% in January, and it's likely to keep rising after that. So, what does it mean? What should you do? Spoiler: you should fix. I'll talk you through that. And the big question you keep asking me: Are standing charges going to be cut?

I'm Martin Lewis from MoneySavingExpert.com, and this is my quick reaction briefing to the news today about the Energy Price Cap.

So, we've long said it would go up in January and it's going up by 1.2%. The Energy Price Cap dictates the price that 80% of homes in England, Scotland and Wales pay for energy. If you are on a standard tariff – if you're not sure, you almost certainly are – then this impacts you. Because, while it's called a Price Cap, most firms don't see it as a maximum, they just set at the very maximum. You will pay the Price Cap.

So only those who have specifically chosen to be on a fixed or a special tariff are not affected by this. Everybody else – if you haven't chosen your tariff or if you've come off a fix and done nothing – you are on the standard tariff of your firm and that is Price Cap. So this affects its price.

So what's going to happen? Well, we've already seen prices rise by 10% on 1 October, and they will rise on top of that by 1.2% in January. The new average Direct Debit rates, because the actual rates depend on where you live in the country and how you pay, are this:

• The electricity standing charge remains unchanged at £0.61 per day.

• The unit rate for electricity is going up by 1.5% to 24.9p per kWh.

• The gas standing charge remains unchanged at 31.7p a day.

• The gas unit rate is going up by 1.6% to 6.3p per kWh.

Of course, the Energy Price Cap is not a cap on the total amount you pay. It is a cap on standing charges and unit rates – so the more you use, the more that you pay. That's why you won't hear me talk about this ‘typical use’ that's often quoted because who is a typical user? So I talk about percentage change.

So it's going up in January. What about after that? Well, the current prediction is on 1 April it will go up again by a couple of percentage points. Then on 1 July it will drop slightly. And on 1 October it'll drop slightly. So: going up in January, here's where we're starting going up in January, going up in April, dropping slightly in July dropping slightly in October. It still is currently predicted – and there is some crystal ball gazing the further out you go – that even by next October you will be paying more slightly than you do right now.

So put that into your heads: over the next 12 months, on average, current predictions are you pay a higher rate than you currently do. Because that's important for contrasting it to the main simple option that you can take, which is fixing. So we've got it at 1 or 2% higher than it is right now, if you stay on the Price Cap. The cheapest fix right now is 5% less than current rates.

So if you fix, you can save immediately. And, if the prediction is right, you will continue to save over the next year. You also get the peace of mind, a guarantee, that no matter what, over the next year, your price will not rise.

So, while there are other options you can look at, such as time of use tariffs, and discounted tracker tariffs, and all that type of stuff, and there's loads of that on MoneySavingExpert.com if you want to read. If you're looking for the simple option, it's get a cheap fix.

How do you do that? You go on to a comparison site because who the cheapest fix is for you depends on where you live and what you use, and you find your cheapest. Now I would strongly suggest you use MoneySavingExpert.com because unlike most comparison sites, it is whole of market by default. Our Cheap Energy Club is whole of market by default. Which means that we show you all tariffs by default.

We don't hide tariffs that we don't have a commercial relationship with. And some of the cheapest tariffs, as they don't pay lead fees to comparison sites are hidden from other comparison sites. But they're not hidden on MoneySavingExpert.com. So do have a look and go through that.

Right. Let's move on to that sticky question. The big one. Standing charges. Standing charges is the amount that you pay per day just for having the facility of gas and electricity. It is an energy poll tax of over £300 a year that you have to pay just for the facility. I believe it is a moral hazard. It disincentivises people on lower use from reducing their bill because it won't have much of an impact.

It's also unfair on elderly people who only have gas central heating for the winter, but have to pay every day in the summer, even though it is not turned on. I have long campaigned for standing charges to be cut. We heard a few months ago that Ofgem had finally launched a consultation about lowering the standing charges on the Price Cap.

It was thought that would possibly be announced today in the January Price Cap announcement. It has not happened, but I am expecting to see the results of the consultation come out in the next two or three weeks. But I'm pessimistic and I need to explain to you why I'm pessimistic.

Understandably – and it is not an unknown situation. I've written about this before – many charities that represent vulnerable people have been worried about cutting the standing charge in isolation, because what would happen if you cut the standing charges? You'd increase the unit rate that you pay for gas and electricity. You pay more for each unit. So that would benefit lower users and it would benefit fairness, but it would penalise higher users.

Now, in general, that isn't seen as a problem, but it is for vulnerable higher users, people who have to have the heat on because of illness or disability or are charging electric wheelchairs, or have dialysis machines in the home. It can be very expensive if you up the unit rate.

Now, I've long said the only way that we can sort that is Ofgem has to work with government in order to cut the standing charge. It cuts the standing charge; Government puts in special protections for those vulnerable higher users. We haven't seen any sign of special protections.

Without those special protections, I can't see Ofgem cutting the standing charge after it's had all those representations from charities. So I think the result of the consultation is it won't cut the standing charge.

My one hope, and it's a suggestion that I put in the consultation that I've long talked about, is that we should move to a system of dual Price Cap tariffs. There should be two Price Caps, effectively. One that's low standing charge and high unit rate, one that's high standing charge and lower unit rate.

So you [would] have those two Price Cap tariffs and you default people or perhaps you only default vulnerable users, that would be an argument I suspect. You default people to whichever one is better for them. So lower users will go to the lower standing charge rate. Higher users will go to the lower unit rate tariff.

I think that is more plausible than seeing standing charges being cut in their entirety. Although I doubt that that would be particularly quick to implement. So it's not good news. But that's my reading of the situation, and I suspect we'll hear more over the next two to three weeks.

So hopefully I've talked you through what the Price Cap rise means, what you should do about it, and what's happening to standing charges. There's a lot more information and nuance and all types of different things and different tariff options, and how you cut your bills and how you check your Direct Debits because many people have too much credit or you're being overcharged, all of those things on MoneySavingExpert.com, but I hope this quick briefing helped. Thanks.