Martin Lewis has warned people to move quickly before the new price cap comes into effect in April. Urging those on price cap tariffs to “get off it quickly”, the Money Saving Expert founder said securing a fixed rate tariff now means households will “save substantially” on energy costs.
He said: “And if you are on a price cap tariff, it’s a pants cap. If you possibly can, you want to get off it, get off it quickly and fix.” Martin’s urgent advice comes ahead of Ofgem increasing the maximum amount homes in England, Scotland and Wales can pay for energy by 6.4% on April 1 — following a 1% rise in January and 10% jump last October.
The price cap sets the daily standing charge and unit rates on standard tariffs.
Martin explained: “You’ll know you’re on one. It’ll tend to be called something like a standard variable or a flexible tariff.”
Standard tariffs are the default tariff households are on if they have never switched, and if they have come off a fixed tariff.
The financial expert said: “And if you are on a Price Cap tariff, it’s a pants cap. If you possibly can, you want to get off it, get off it quickly and fix.”
How much more will people be paying for energy? Martin explained: “In simple terms, that means for every £100 of energy you pay right now, from 1 April, and through May and June, you will pay £106.40 for it.”
Martin explained that the regulator limits the standing charge – the daily fee paid just to access gas and electricity – and the unit rate of energy.
“Let’s do electricity first,” he began. “This is the average UK Direct Debit Price Cap. That is going up 8.7% on the unit rate, but down an average 12% on the standing charge. On gas, the unit rate is going up 10%, the standing charge is only going up 3.2%.
“So, in reality, lower users – let’s say someone on £100 a month – will see a less than 6.4% rise. It’ll be about 5% on £100 a month with lots of assumptions, whereas higher users will see a higher rise. Someone paying £300 a month will probably be seeing a rise of around 9% on their energy bills in April.
“But even within that, there’s another complexity because this is regional pricing. So, while, on average, the electricity standing charge is going down, there are outliers. If you live in North West Wales or London, your electricity standing charge will still be going up.
What households should do now to save money on energy
Simply put, Martin recommended households fix their energy tariff in order to “save substantially”.
He said: “Right now, the cheapest fixed rate tariffs are 4% below the current Price Cap. There’s the current Price Cap. But in April, that Price Cap is going up by 6.4%.
“And after April, we think in July, because wholesale rates have dropped a little bit recently, it might come down a little, but still won’t be as low as the current Price Cap. And then in October [it’ll] go up and stay around that level.”
He continued: “But on the current predictions, you can fix now and save money, and you can certainly save substantially once it goes up in April. So what you want to do is do a whole-of-market comparison to find your cheapest fix, because your cheapest fix depends on where you live and how much you use.”
The financial expert pointed out that any savings you make when viewing tariffs now are compared to the current price cap. Thus, the potential savings will be “far bigger” after the price cap increases.
“So [savings] might only be £30 or £40, but in reality that Price Cap is going to go up. So compared to what you would pay if you did nothing, once it goes up in April, the saving will be far bigger and it is still worth fixing.”
Finally, he noted that most comparison sites hide tariffs that don’t pay them by default.
“You have to find a little button and click ‘show me all tariffs’ if you want to see them. Or even better, you could just use my MoneySavingExpert.com Cheap Energy Club comparison that automatically shows you all the tariffs. So that is roughly what you should be doing.”
The energy tariffs that will save money
As for specific tariffs to sign up for, Martin said: “There are other tariffs out there some may want to consider. If you have very low usage, then both British Gas and EDF have trackers that track the Price Cap, but with £50 off standing charges per year. So for very low users, that can be beneficial.
“And sophisticated users probably know about, but should be looking at, things like the Octopus time of use tariffs and the Tomato time of use tariffs.”
