Brits are being urged to brace for a 10 per cent increase in their gas and electricity costs next month as the new energy price cap comes into force. The latest figure – which will take the average energy bill from £1,568 to £1,717 a year – is set to add an extra £12 to most people’s monthly bills.
The announcement has come as a blow to those already struggling to pay their bills and with 10 million people no longer set to receive Winter Fuel Payment this year, there are fears that over 400,000 households across the country could be plunged into fuel poverty.
However, despite this decision marking the first time the energy price cap has increased since January, costs will still be 6 per cent (or £117) cheaper than the same period last year when the average utility bill was capped at £1,834.
So what do you need to know about the latest energy price cap increase? And how will your energy bills change? We’re here to tell you everything you need to know ahead of next month’s price rise.
What is the energy price cap?
The energy price cap was introduced by Ofgem – the energy regulator for Great Britain – in 2019 in an attempt to stop providers from overcharging customers on default tariffs who pay standard variable rates. This means that, if you’re on a fixed-rate tariff and pay the same for your gas and electricity each month, the energy price cap has no impact on you and the amount you pay each month will stay the same.
Ofgem reviews the energy price cap every three months (January, April, July, and October), an increase from the six-monthly review that was in place until October 2022. This means that the latest energy price cap will start on October 1 and end on December 31 2024, when a new limit will be introduced.
There is a common misconception that the energy price cap is the maximum amount you can be charged for your annual energy usage, but it acts as more of a safeguard to stop providers from ripping off customers. In other words, if you use more than the average household, you will pay more in line with the standard variable rate. The actual amount you’ll pay depends on your total household energy usage, where you live, how you pay, and the type of meter you have.
How is the energy price cap calculated?
Ofgem looks at a number of things to calculate the energy price cap but prices are primarily based on the various costs suppliers face and how they have fluctuated in the last three months. Some of the main factors that determine the energy price cap include wholesale energy costs, network maintenance costs, policy costs, and VAT.
Put simply, if suppliers face higher underlying costs, the amount of money needed to cover these costs increases, and the energy price cap is increased to allow providers to up their prices. This means that, while the energy price cap limits the amount suppliers can charge and ensures customers on default tariffs are paying fair prices, it doesn’t necessarily mean that energy costs are more affordable than they were pre-2019 before the limit was introduced.
Should I switch to a fixed-rate tariff?
The latest energy price cap has understandably got many wondering whether they should make the switch from a default tariff to a fixed-rate tariff. But is it a good idea? And will you really be paying less?
Before deciding to switch, it’s important to work out how much you’ll be paying under the new energy price cap and how this compares to what you would be paying under a fixed-rate deal. Remember, most fixed-rate tariffs run for a minimum of 12 months while the energy price cap is updated every three months.
There is always a risk with switching to a fixed-rate tariff that you could end up paying more in the event that wholesale prices drop in the next year. With this in mind, you’d need to fix for up to 11% more than the current price cap introduced in July 2024 to save more than you would by staying on a standard variable tariff.
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