Energy Bills Are About To Fall...
But There is a Problem Waiting Round The Corner
The annual bill for a typical household falls to £1,923 from 1st October 2023, under regulator Ofgem's price cap.
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That means the typical bill will be £577 lower than last winter.
But bills are forecast to rise again in January. Last year each household received £400 of support over six months, but this year the government is yet to announce any equivalent scheme.
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There remains help in the form of the £150 Warm Home Discount, which is expected to help three million households.
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Despite the fall in energy bills that the price cap will bring in, Average annual gas and electricity bills remain high by historical standards. In the winter of 2021, the average household energy bill was £1,277.
Despite today's fall - in the past 2 years the average energy bill has risen by a huge 50%.
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What On Earth
Is It?
What It Is: The energy price cap is the maximum amount energy suppliers can charge you for each unit of energy if you're on a standard variable tariff.
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The cap is applied to customers on a default energy tariff including those who pay by direct debit, standard credit, prepayment meter, or who have an Economy 7 (E7) meter.
Ofgem introduced the price cap in 2019 at the request of Theresa May’s government to offer consumers who chose not to shop around for cheap deals some protection against what the former UK prime minister saw at the time as “rip off” energy bills.
The Advantages: The price of gas and electricity is not only very volatile, but it has also been rising faster than professionally baked souffle. Since heating, cooking and light are essentials without which life would be very difficult, the industry regulator has acted to protect consumers from energy companies raising their prices too much.
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The price cap therefore limits the price at which power companies can charge consumers for a unit of electricity or gas on their standard variable rate.
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The rate is adjusted every 3 months.
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So far, so good, warm and toasty. But that is not the whole story...
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The Disadvantage: You may have noticed that I've referred to the fact that energy companies mustn't charge more than the price cap on the standard variable tariff. They can, however, charge whatever they like on other tariffs. It used to be much worse and there was a lot of confusion over a pick n' mix of tariffs, which meant you had to spend the weekend choosing a deal instead of watching your latest Netflix. These days the regulator has insisted that consumers face a maximum of 4 choices for each electricity or gas deal.
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1: This still means that if you are on a fixed-price energy deal - the price cap won't apply to you.
2: You will often hear that the price cap means households will pay a maximum of "£1,923 a year for a typical household for gas and electricity." This can be very misleading because there is in fact NO LIMIT on how high your gas and electricity bill can go. The price cap refers to the price of a unit of energy. The more you keep your lights on and the more you use gas to power your boiler and cooker, the more you will pay. The maximum household bill, which people refer to, is just an example based on the average fuel consumption of a household. If you use more energy than the average household, you will pay more.
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3: In an attempt to cut their energy bill, we hear terrible stories of people suffering in the cold. But turning off the electricity doesn't turn off your energy bills entirely. That's because the energy companies charge everyone a flat rate, no matter how much you use.
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The standing charge is now around 53.37p per day for electricity and 29.62p per day for gas, excluding VAT, for a typical dual fuel customer paying by Direct Debit.
That means you pay over £500 per year for electricity and gas even if you never use any electricity or gas.
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To set that in context - you can currently get an Easyjet quick break for two people with flights and hotel in Amsterdam in November for around £400. So you are paying more for the benefit of staring at your gas meter than you would for 2 days in a wonderful European capital on holiday.
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The £150 Warm Homes Discount
The Warm Homes Discount is not paid to you - it’s a one-off discount on your electricity bill, between October 2022 and March 2023. The discount will not affect your Cold Weather Payment or Winter Fuel Payment.
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If your electricity supplier is part of the Warm Home Discount scheme, then you'll get the payment automatically if you or your partner receive the Guarantee Credit portion of Pension Credit. One of you must be named on your bill. Alternatively, if you're in receipt of another 'qualifying benefit' and are considered to have high energy costs, then you'll also receive an automatic payment. Either way, you should receive the discount automatically if you're eligible, so you don't need to apply for it.
The Winter Fuel Payment
If you were born on or before 25 September 1957, you could get up to £600 to help with your bills in winter this year. The exact amount depends on your age and whether other people in your household also qualify.
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f you've received it before, you should get your Winter Fuel Payment automatically this year.
If you claim State Pension or another social security benefit (not including Housing Benefit, Council Tax Support, Child Benefit, Universal Credit or a deferred State Pension), you should also be paid automatically.
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The Winter Fuel Payment is NOT means tested - meaning it doesn't depend n whether you ear a lot or a little.
Cold Weather Payments
£25 for each 7-day period of cold weather between Nov 1 and March 31. Eligible if you're on selected benefits that include Pension Credit, & Universal Income. If you live in Scotland you cannot get Cold Weather Payments. You might get an annual £50 Winter Heating Payment instead.
Great British Insulation Scheme
You may be able to get free or cheaper insulation to reduce your home’s energy bills depending on your council tax band and your energy performance certificate. See the Gov website for full details.
Shopping Around
The mantra of most finance journalists is "shop around". That of course is usually good advice and also applies here - but there is a but....
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Despite efforts from the regulator to cut down on confusion marketing, actually shopping around for a good deal at the moment is not easy.
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The best advice is to go to one of the comparison websites. The Ofgem-accredited price comparison websites at the time of going to press are:
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The problem is that most energy customers are currently on a standard variable tariff (SVT) and pay at a level set by the price cap for each kilowatt hour (kWh) they use. Therefore there tend not to be great rates around.
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One of the things to consider is whether ti move to a fixed-price deal. Fixed tariffs can offer benefits such as knowing what your unit rate will be in advance, and this can help with household budgeting. There can be drawbacks, however, including having to pay exit fees if you want to change your deal.
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Ofgem have a guide to switching here.
More Help ....
The charity National Energy Action has a good website with resources and advice. Visit it's help pages at https://www.nea.org.uk/get-help/key-things-to-do-if-you-are-struggling-with-your-energy-bills/