Energy Price Cap to fall by 6.7% from 1 April – but Martin Lewis explains that unprecedentedly fixes will drop too

There's change afoot in the energy market and it's really worth you understanding what's happening. We had today [25 February] the announcement from Ofgem, the energy regulator, that the Energy Price Cap will be cut by 6.7% for the three months from 1 April. But that's only half the story, because for all tariffs, even if you're already on a fix, we're going to see the rate dropping in April.

So yeah you're on an existing fix. It's meant to be locked in. That price is going to come down too. So I want to explain to you why this is happening. But most importantly, what you can do to minimise the amount that you pay on your energy bills.

We'll do the Price Cap first. The Energy Price Cap dictates the rate you pay if you're on your energy firm's standard variable tariff, its bog-standard tariff. Its 'do-nothing, I-haven't-switched, or my-fix-ended-and-I-didn't-move-again' tariff, and 60% of homes are on that. The Price Cap is a Pants Cap, as I'll explain in a moment. You should get off it. You're paying too much if you're on it. If you can get off it, get off it.

But anyway, what's happening to it? Well, very brief summary. Electricity on average across the UK [excluding Northern Ireland and paying] by Direct Debit, and it does vary, the unit rate is coming down by about 10.9% per kilowatt hour. The Standing Charge is going up by 4.5% per day. The gas unit rate is going down by 3.2%, and the gas Standing Charge is going down by 17%.

So overall, the biggest winners here are those who are high-using electricity-only customers. But everyone should see a reduction, in general, apart from the very, very, very lowest users. And even then it will be trivial once you add up gas and electricity, move it together.

Now, if you look at Ofgem's 'typical use' figure, which is mostly meaningless, but it gives you an illustration, of sort, of pounds and pence. That's a saving on average of £117 a year, though in truth the Price Cap only lasts three months. So that's an annualised saving on a three-monthly period.

But, to be fair, this time round, you need to understand that the main reason the Price Cap is dropping is the same as the reason we're going to see other tariffs dropping on 1 April. That's because there have been underlying changes to the policy costs of energy.

The Government announced in the last Budget it's the so-called £150 off bills, though it's actually going to be slightly less because other costs have gone up.

Now, what's happening is currently there's an ECO scheme that ends in March, so that's coming off bills, and there's a Renewable Obligation that you pay for on your bill, and 75% of that is being shifted from energy bills to the State, so general taxation or debt, however you see it.

So those policy amounts are coming off the bill. And because of that, that's what's driving the Price Cap coming down. But it's also meaning that all other tariffs are coming down too. So if you're on a fix, whether you fix today or whether you're on an existing fix, if you're on a fix on 1 April, expect to see your rate drop by 7% to 9% on most fixes. The exact amount depends on usage. So there's some wriggle room there.

And I say most fixes, because you know I said there are two policy costs coming off bills? Well, one of them, the ECO scheme, smaller companies were exempt from it so they weren't paying it anyway. So if you're with a smaller company, the amount your fix is dropping won't be quite as big, because only half of the element is coming off bills because the other one wasn't there in the first place.

So the big question that people ask me at this point is: 'what should I do? Is now the time to fix?'. Well, yeah, it's a pretty good time. You can never work out the perfect time. And here's why. Energy Price Cap is here [Martin indicates with his hands]. The cheapest fix is 14% cheaper. On 1 April the Energy Price Cap is coming down by 7%.

But as I've explained, your fixed rate is going to come down by 7% to 9%. So the differential between the two, the 14%-ish that you're going to save if you go for the cheapest fix will remain.

And then the prediction of the April Price Cap. Actually, if you look across the year what the analysts are saying, is this may move up or down about a percent, but it's going to stay at the new April Price Cap level for most of the rest of the year, right up into the winter.

So the differential, the amount you save on a fix, should remain pretty constant if those predictions are correct. So what you should do is, of course, get yourself onto a whole-of-market by default comparison site like my Cheap Energy Club, because your cheapest fix depends on how much you use, where you live in the country, and how you pay.

Now, I should note, fixing is the simplest route but there are some other good options. There are specific EV tariffs if you're on an EV, the specific solar tariffs, if you've got solar panels, the sophisticated time-of-use tariffs, like Agile or Tracker from Octopus, and there's a new tariff, or an improved tariff, today for those who are low users that's worth looking at...

It's called the EDF Simply Tracker Extra. What that does is it's basically a Price-Capped tariff with £100 off Standing Charges. So if you're a lower user where the Standing Charge makes up a big proportion of your bill, that is worth looking at. And if you're on smart prepay where there aren't any good fixes, that is also worth looking at.

And if you go via MoneySavingExpert.com (MSE) by the way, we've got an extra £70 cashback that you get when you sign up to the [EDF Simply Tracker Extra] too, so that's via the Cheap Energy Club.

I'm looking at my notes, I think that's it. I've got a couple more films likely to come out on energy. One about Standing Charges, the much-hated Standing Charges, and one just explaining in more detail about these policy changes and what makes up a bill, but hopefully that gives you a good enough briefing for now.