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We are deeply saddened by the death of Her Majesty The Queen. Our thoughts go to all who loved her.
As the nation is officially in mourning, we've limited this email to news or items with end-dates before the next weekly email.
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Martin's 16 Energy Price Guarantee need-to-knows
New. The 1 Oct 80% price cap rise is cancelled - prices will still rise but by far less (new calc to help). FIXED? Your rate may drop too
Lots of other key info too, as a minimum, scroll through all points
I've spent months trying to raise the alarm over the energy bills catastrophe due this winter - that'd been set to take a typical bill to over five grand. My plea was for urgent intervention, so I welcome last Thursday's energy price guarantee announcement, which does just that.
It's not perfect, though I'm not sure any plan would be. It's expensive and will add billions to government debt. The guarantee's big benefit is it reduces everyone's future costs - yet that's also its problem, as it's not targeted at those who need it most. Plus it means those with the biggest bills (often the wealthiest) gain the most. Overall though, many will breathe a sigh of relief.
We, and likely energy firms too, still await some technical clarifications from the Govt, so give me a tad of wiggle room. But helpfully this afternoon (Tue) I was in our second summit with the big energy firm CEOs (called by me and Ovo's founder) which helped clear some things up.
PS: My speciality is consumer finance, so I'll leave the economics, electricity generation plans, and the cap for businesses to others.
1. On 1 Oct the current price cap will be replaced by a roughly 27% higher 'price guarantee rate' set to last for two years - taking a typical bill from £1,971/yr to £2,500.
I've seen a lot of confusion, so let me start by saying there's NO MAXIMUM ENERGY BILL. Instead, standard tariffs in England, Scotland & Wales (roughly 85% of homes are on these) have a maximum daily fee and cost per energy unit that providers can charge.
The quoted rates many media outlets use are just an illustration of the impact of these caps for someone with typical use (they should state that) so USE MORE, YOU PAY MORE; USE LESS, YOU PAY LESS. I prefer to instead lead on the rough percentage change.
We've switched our price cap calculator so it's now the Energy price guarantee rise calc. Just enter how much energy you use, or how much you pay on direct debit (we don't have prepay data yet - we'll add it as soon as Ofgem sends it, hopefully Wed afternoon), and your region, and it'll tell you an estimate of what you'll pay under the new energy price guarantee.
Important: The result DOES NOT include the £400 discount off all households' bills this winter (see below) so subtract that to see the total impact (we're working to add this info in).
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PS: You can watch my video explaining the changes (though it was my instant reaction and the info on fixes has changed since).
2. The £400 flat reduction for all homes this winter remains - take that into account and the average rise over your current cost is 6.5%
Back in May, the then Chancellor announced a £400 flat payment to reduce every household energy bill this winter. That will still happen. Factor this £400 in, and the price guarantee rise over the current cap is an average 6.5% (£2,100/yr on typical use).
Though as the £400 is the same for all, those with low usage could actually see a reduction in the total paid compared to the current rate.
In practice you will either receive, or get your bill reduced by, £66 or £67 each month from Oct 2022 to Mar 2023. See how YOU'LL receive the £400 from your supplier, as it varies by payment type and firm.
However, while the price guarantee rate is promised to last two years, there is no news on whether the £400 payment will be made next winter. If not, then in practice costs for winter 2023/24 will rise.
3. The price guarantee is still a cap on standing charges and unit rates. While using the calc is easiest for most, some like to see actual rates. Here are the average dual-fuel direct debit rates for the new energy price guarantee starting on 1 Oct, how it compares to now, and what was due to happen under the old price cap. The new rates include the announced ending of green levies on energy bills.
- Electricity
Unit rate: 34.0p/kWh (currently 28.3p, was due to be 51.89p)
Standing charge: 46.4p/day (currently 45.3p, was due to be 46.4p)
- Gas
Unit rate: 10.3p/kWh (currently 7.4p, was due to be 14.76p)
Standing charge: 28.5p/day (currently 27.2p, was due to be 28.5p)
The cap varies by region and how you pay, so for full info see...
- Direct debit price cap by region
- Prepayment meter & payment in receipt of bills price cap (still to come). We're waiting to hear these from Ofgem, and will add them in the link when we get them (hopefully Wed afternoon). Prepay is usually 2%-ish more than direct debit, payment in receipt of bills 6%-ish.
The fact payment in receipt of bills is higher is why those thinking of "ditching direct debit to just pay what I owe" should be careful. It may benefit you in immediate cash-flow terms, but weight that against the fact in the long-run the rates are higher so you will pay more in total.
| Should you max out prepay top-ups before 1 Oct? I'd promised a firm-by-firm guide, but we've had to bump it to focus on the new guarantee, but hope we'll publish it next week. In a nutshell though... if you're on a non-smart, electricity (not gas) prepay meter, it may be worth it (not for Scottish Power), as you'll pay the current rates until you top up again. |
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4. The new price guarantee is FAR COSTLIER than last winter, but also FAR CHEAPER than it would've been this winter. Many want to know if this is a good deal, so I've knocked up a table to put it in context, so you can decide for yourself.
Where it says 'prior cap', that's the old price cap regime that the guarantee replaces. Then, prices were based on the huge hikes in wholesale rates (the rises are lower than a couple of weeks ago as European policy announcements have given the market confidence).
|
% increase since last winter |
Typical dual-fuel direct debit bill |
| Price cap last winter |
- |
£1,277/yr |
| Current price cap |
54% |
£1,971/yr |
| New price guarantee for 2yrs from 1 Oct |
96% |
£2,500/yr |
| Price guarantee (including £400 rebate) |
64% |
£2,100/yr |
| Prior planned price cap from 1 Oct 22 |
178% |
£3,549/yr |
| Prior predicted cap from 1 Jan 23 |
259% |
£4,586/yr |
| Prior rough predicted cap from 1 Apr 23 |
293% |
£5,015/yr |
| Prior rough predicted cap from 1 Jul 23 |
240% |
£4,347/yr |
| The % increases are averages. The predicted rates are Cornwall Insight's from 8 Sept. The further out the prediction, the less sure it is. |
5. On a FIXED deal? What many pay will be reduced - no one's will increase.
Technically the price guarantee for standard tariffs is done as a reduction to the planned October unit rates. The Government has said from 1 Oct the same 4p/kWh gas, and 17p/kWh electricity reduction will apply to many (not all) fixed rates too. That's very roughly in the ballpark of a 30% decrease.
My latest reading (the rules aren't finalised) is the reduction will only apply to fixes that will be more expensive than the price guarantee. Energy providers also tell us that their understanding of the Govt's rules (so far) is that higher fixed rates should at most only reduce to the level of the new guarantee. To help though, my BEST GUESS is it means...
- Very cheap fix: (eg, 2yr fix from before crisis started). If you'll pay less than the new price guarantee, there's no reduction.
- Mid-level fix: (eg, fixed 3-9mths ago at a premium). If your fix is higher than the new price guarantee, it will reduce to the same level as the new price guarantee.
- High-rate fix: (eg, fixed very recently at high rate to forestall predicted future huge hikes). Your fixed rate will reduce substantially but a few of these may still be costlier than the price guarantee (see point 6 for your options).
As soon as we've firm confirmation, it'll be in our new the price guarantee for fixed prices guide. And a final note, as normal, when a fix ends, you should be automatically moved to the price guarantee rate, unless you choose something different.
6. If you are fixed, no need to do anything until things are firmed up - don't bother calling energy firms - they don't know yet.
It looks like the enormous majority of those on fixes will either be automatically paying less than the new price guarantee, or will see their fixed costs reduced to be the same level as it (so effectively are moved to a price guarantee tariff).
As I explain above, a very few who fixed very recently may see a big reduction in cost, but still pay slightly more than the price guarantee.
- How do I find out how my fix compares to the guarantee rate? You can't yet, energy firms don't have the final details. So don't call - it'll be a pointless phone queue - I'll update you when we know.
- If my fix is more expensive than the price guarantee, can I leave exit penalty-free? The Govt said "this is up to firms" BUT I've good news...
Today in the energy summit at MSE Towers with the big firms' CEOs, all firms there - Brit Gas, Ovo (SSE), Octopus, EDF, E.on, Shell - agreed to my request that customers who end up on fixes at a higher rate than the price guarantee WILL be allowed to move on to that firm's price guarantee tariff, with no early exit penalties, until at least 15 Nov (some beyond that). Note Scottish Power chooses not to attend the summits.
Most will also in time communicate to the small number of people in this position, before that deadline, and offer them the chance to move, once they know (again it's too early now, and you may be charged exit fees before things are firmed up, so - while frustrating - it's probably easiest for most to wait for now).
Yet remember most fixes will likely be the same or cheaper than the price guarantee, in which case you won't need to do anything. And of course we'll compile firm-by-firm info when we get it in the price guarantee for fixed prices guide.
PS: Originally the Govt initially told me anyone would be able to leave their fix penalty-free. This was later corrected when news of the fix discount came in. But now I've made a direct agreement with most big firms (for those paying over the guaranteed rate), it should work out.
7. The extra payments for those on many benefits, with disabilities and for pensioners will continue.
As well as the £400 to all households, in May it was announced...
- Benefits: Over eight million homes in the UK on means-tested benefits will get a total payment of £650 this year in two lump sums. The first half has been paid, the second half will be paid this autumn (there's no date yet). Full info in £650 payment help.
- Disabilities: About six million people across the UK on certain disability benefits will receive an automatic one-off payment of £150 with payments starting on 20 Sept.
- Pensioners: Every UK household with someone over state pension age (aged 66 or above) between 19 and 25 Sept 2022 will also get an extra £300 on top of their normal winter fuel payment (usually between £100 and £300), payable in November or December.
There's no news on whether these three extra payments will happen again next year. I think the political reality though is it would be very difficult to keep the cap at this level and not make the payments (one to ask MPs about next year), though I think the £400 payment to all homes is more in the balance.
8. I'm fifty-fifty on whether the Govt will also announce a cut in energy VAT this month. The guarantee may not be the end of energy changes. I was specifically told energy VAT (charged at 5%) was not within the remit of last week's announcement. The new Chancellor is soon set to do a 'fiscal statement' (Budget-lite), probably on 22 September.
Interestingly, take the VAT and the £400 off, and a typical energy bill under the price guarantee would be close to the current cap - so a 'no rise' claim would be possible. That sounds like the type of rabbit a new Chancellor may want to pull out of his hat.
9. You will pay £273/yr even if you use no energy.
You pay for having access to energy even if you don't use it. The daily standing charges rose hugely in April, and will rise a touch in October. If you've both gas and electricity, the average direct debit standing charge is £273/yr before you use owt.
I and others have continually pushed back with Ofgem to try and get this changed, but with little success.
It's worth noting there are variances in standing charges by region (eg, London is £225/yr, SW England £296/yr) - Ofgem says it is due to the different costs to transport power to where you live.
10. Similar help coming for Northern Ireland (awaiting details). The Govt has said it is committed to finding rapid solutions to do this, but I'd be surprised to see it in place by 1 October. We don't know exactly what the "equitable support for households in Northern Ireland" will be.
11. For those on LPG and heating oil, the Govt's said there will be discretionary payments at a similar level to help (awaiting details). Don't hold your breath - I suspect we may not get info on this for a week or two. Of course we'll update you when we know (both here and on social media). Any updates will go in our LPG and heating oil guide.
12. Pay landlord directly for energy (including students)? Govt says you should benefit from the cap for new businesses (awaiting details). For those who pay energy bills indirectly - either included in total rent or as a surcharge to a landlord - the cost is likely derived from a business tariff (which until now hasn't been capped).
There will now be a six-month cap on business tariffs which the Govt says will help this - though details are still scant. As is info on exactly whether you'll have rights to enforce the discount (especially if the prior expected higher prices are locked into your contract), we await details.
13. On a central heat network, or live in a park home? You should get comparable support (awaiting details). Though again very scant details on this, including when we'll hear more. We will update when we know.
14. There may be help if you're going to struggle to pay your bills. If you're already struggling, or will over the winter, it's always worth talking to your energy firm - be polite and straight with it - and make sure you explain if you're vulnerable. There can also be hardship & debt grants from energy suppliers.
Our full What to do if you're struggling to pay energy bills guide includes energy and debt-help charities that may be able to suggest something.
15. Can you reduce your energy usage?
Obviously, cutting use cuts bills - and hopefully there are cuts you can make to improve efficiency that don't affect your lifestyle too much.
- Start with energy saving tips.
- Add in our Energy mythbusting guide for less clear-cut issues.
- Really struggling? See our Heat the human, not the home guide (though thankfully the warm weather helps right now).
16. Don't look at energy bills in isolation - many can still make large savings elsewhere.
Of course, those who have already cut to the bone won't be able to do any more, but many others should see this as a clarion call to check all your outgoings. Here are a few examples...
- Family income under £40,000/yr? Do a 10-min benefits eligibility check. I'm not saying you will be eligible, just it's worth checking. Some discover they're due £1,000s.
- Had the same broadband provider for years? You're likely out of contract. Check if you can cut £100s off broadband costs.
- Got more rooms in your home than people (or the same number)? In Eng or Wales, check if you can save £100s with a water meter.
- Paying interest on credit card debt? Use our 0% Balance Transfer Eligibility Checker to see if you can shift the debt to interest-free.
These just scratch the surface, so do check our full Money makeover guide to go through everything. And clearly, we'll continue to try to provide help to mitigate rises as much as we can.
PS: 'Martin's Money Mondays' this Wednesday on Good Morning Britain. As well as guest-presenting the show with Susanna, I talk through and take questions. It's had to move to Wednesday this week and next. This week I will, of course, be going through the new energy price guarantee.
