Don’t wait for the price cap to cut your energy bills

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More than £11 million households stand to save around £75 a year on their annual energy bills, thanks to an Ofgem price cap due to take effect at the end of the year.

The energy regulator has confirmed that it will be capping prices on standard variable rate tariffs from December this year, but the average saving still falls short of the £100 annual saving promised by the government.

When will the energy price cap take effect?

It’s been almost a year since Theresa May, the UK prime minister, confirmed that the government was planning to publish a draft bill to cap prices on standard energy tariffs and end “rip-off energy prices”.

It subsequently handed responsibility for the cap over to Ofgem, and the Domestic Gas and Electricity (Tariff Cap) Act became law on July 19, to give the regulator a duty and the powers to put the price cap in place.

The energy regulator has this morning announced it will be capping the cost of all standard variable rate tariffs at £1,136 a year.

The average price of a Big Six standard variable rate tariff is £1,220 a year, but that figure is likely to rise soon, however, as two key players, Npower and SSE, are expected to follow British Gas, EDF Energy and Scottish Power by announcing a second price rise this year.

The price cap will take effect from the end of December this year, and stay in place until 2023.

Why do we need an energy price cap?

Over the last few years, runaway price increases have seen energy bills rising well above the rate of inflation, with customers on standard variable rate tariffs and expensive prepayment meter plans suffering the most.

Standard variable rate tariffs are the default, and usually most expensive, tariffs offered by suppliers, and you’ll find yourself on one of these if you’ve never switched supplier before or you’ve let a fixed rate deal expire without switching to another one.

You might also find yourself on one if you’ve just moved into a new property and haven’t yet switched supplier.

There are more than £11 million households currently sat on standard variable rate tariffs, and not only are these deals expensive, they vary significantly in price – once the price cap is introduced, a typical British Gas standard variable rate customer stands to save about £69 a year, while the same customer on Scottish Power’s default deal would save nearer to £121.

Dermot Nolan, the energy regulator’s chief executive, said: “Ofgem has made full use of the powers parliament has given us to propose a tough price cap which will give a fairer deal to consumers on poor-value default tariffs.”

The price cap has been introduced to help make prices more uniform, and offer all customers greater value for money. This price cap follows on from the prepayment price cap, also known as the safeguard tariff, which was introduced to help vulnerable customers on prepayment meters.

It’s fair to say this prepayment price cap hasn’t worked quite as well as expected though, as the regulator has imposed two price increases on the safeguard tariff this year alone – the £47 price hike due to take effect next month follows on from a £57 price hike imposed in April.

And, despite this morning’s announcement, standard variable rate customers could still face further price hikes, as the level of the cap will be able to move up or down every six months. The level will depend on costs facing suppliers, such as the wholesale price of gas and electricity, which has been rising this year.

Which means that switching supplier still remains the best way to beat the energy price hikes and avoid overpaying for gas and electricity.

Are there better alternatives to a price cap?

When discussing Ofgem's decision to extend its safegauard tariff to include some of the most vulnerable households sat on expensive standard variable rate tariff, we suggested that resources might be better utilised in promotoing energy efficiency to tackle the fuel poverty problem, which affects 4.5 million UK households. You can read more about that in our blog Should energy efficiency take priority over a price cap?

David Osmon, a former Ofgem employee and now an author at the Ideal Economics think tank, has also suggested what he feels would be a better alternative to the price cap announced by the regulator - a cap on the standing charge.

A number of costs that go into making up your monthly energy bill, but the price you pay for your actual gas and electricity can be broken down into two parts – the unit rate and the standing charge.

  • Unit rate - this is the price you will pay per unit, measured in kilowatt hours (kWh) of energy, so it can fluctuate depending on how much energy you use.
  • Standing charge - this is a fixed amount that you are charged each day, regardless of how much gas or electricity you use.

No standing charge energy tariffs are avaialble, but they usually come with a higher unit rate, and so aren't usually cost-effective unless you leave your property vacant, or don't use any energy at all, for about nine months of the year.

So why does David Osmon think a cap on the standing charge would be more effective than the standard variable rate price cap announced by Ofgem?

Speaking to BBC Radio 4's PM programme, Mr Osmon highlighted how although the average annual standing charge on a dual fuel tariff currently stands at £156, the actual related costs covered by the standing charge only amount to about £60.

He then outlined how a cap on standing charges has a three-fold beneft that the Ofgem standard variable rate price cap doesn't fully address.

Osmon said: "A cap on the standing charge would have three very powerful effects: Firstly, it targets protection at low income households, who are the most vulnerable consumers. And, in particular, they consume the least energy. So, the standing charge forms a very large part of their total bill, which means they pay the highest overall rate for the energy they use.

"Secondly, unlike price caps generally, a cap on the standing charge would dramatically boost competition. Consumers would find it much easier to compare tariffs as they would only need to consider the unit rates.

"And thirdly, while those in fuel poverty will be able to afford more energy as a result of having the standing charge reduced, the resulting higher unit rates will lead consumers to reduce energy consumption overall. And that will have wider benefits in terms of lowering carbon emissions, improving security of supply, and reducing the need for investment in additional generation and network capacity, which would otehrwise have fed through in higher bills for consumers."

As things stand, switching supplier remains the best way to save money on your annual energy bills, and making the switch with UKPower takes less than 10 minutes, and could cut your annual energy bills by as much as £482* a year.

Here’s how to switch energy supplier…

How to switch energy provider

Switching energy provider is a quick and easy way to save money on your monthly gas and electricity bills. Make the switch with UK Power now

Why switch energy with UKPower?

Here are four good reasons why you should make the switch with UKPower today:

  1. Saving is quick - It only takes five minutes to switch to a better deal, and you could save more than £482* on your annual energy bills.
  2. Saving is easy - We compare tariffs from a wide range of suppliers, and show you how much you could save by switching - just choose the best deal, and we'll take care of the rest.
  3. Switching is free - You'll pay nothing. The commission is paid by suppliers, and this will not affect the price of any tariff you sign up to using our service.
  4. Switching is hassle-free - The switch should take no longer than 17 days, and there'll be no disruption to your service - gas and electricity will be supplied through the same pipes and cables.

Enter your postcode in the box at the top of the page to start the switching process, and you could be on your way to cheaper energy bills in a matter of minutes.

Click here to run an energy price comparison, and see if you could be paying less for your gas and electricity.


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