The Energy Price Cap Rise – here’s what you need to know
Guest Blog by Hayley Millhouse Managing Director, OpenMoney – partnering with The Co-op Credit Union
By now, with how much it’s been discussed in the news the past few months, we’re pretty sure most of you will have heard about the energy price cap. But in case you’re not quite sure what it is, the price cap is something that Ofgem (Great Britain’s independent energy regulator) set up to make sure energy companies aren’t able to over-charge their customers.
It caps the price suppliers can charge you on their default tariff and Ofgem review and make changes to it every February and August based on the latest estimated costs of supplying energy, all to make sure you’re only ever paying for legitimate costs.
This means that sometimes, if gas and electricity cost prices go down, the cap will go down as well so you end up paying less. But unfortunately, that’s not the case right now. This February review will see the price cap rise by 54% when it comes into effect on 1st April, taking energy bills towards the highest levels since the cap was introduced. To put that into perspective, for someone on typical bills it will increase from £1,309 to £2,017 – just over a £700 rise.
Historically, a ‘standard variable tariff’ (which is a supplier’s default tariff that changes based on wholesale fuel prices) would be the most expensive option, and customers have been able to save hundreds of pounds by switching to a cheaper ‘fixed rate’ deal. However, the cost of energy on the global market is currently 3x higher than it was a year ago and this has meant suppliers have been unable to price below the cap rate. This means that if you are on a standard variable tariff, there’s not loads you can do to lower the cost right now.
The reality of this is pretty grim, with many news outlets reporting that this combined with rising inflation could leave 6M households in fuel poverty. It’s undoubtedly a scary time, but we can only control what we can control and that’s what we need to focus on.
So, here are some things you may want to consider:
1) Check if you qualify for Warm Home Discount
Warm Home Discount is a government scheme which gives those eligible £140 off your electricity bill for winter. The money doesn’t get paid to you, it goes directly to your energy supplier to offset some of the cost. You can check if you’re eligible here: https://www.gov.uk/the-warm-home-discount-scheme
2) Check if you’re entitled to Cold Weather Payment
Similarly to the Warm Home Discount, this is a government scheme where, if the average temperature in your area is recorded as, or forecast to be, zero degrees Celsius or below over 7 consecutive days, then those eligible can claim £25 for each 7 day period. You can check if you’re eligible here: https://www.gov.uk/cold-weather-payment
3) Check if you’re eligible for a grant to make your home more energy efficient
There is a scheme called ECO (which stands for energy company obligation) which is there to support energy efficiency improvements including insulation and some heating improvements in low income and vulnerable households. You may qualify for ECO if you claim benefits and meet other criteria, so check if you’re eligible here: https://www.simpleenergyadvice.org.uk/pages/energy-company-obligation
4) Work on becoming more financially resilient
This is all about getting more organised with your money management. Set your monthly budget, review your spending, and know your bills across all your accounts and credit cards. There are a bunch of money management apps, including the one from us at OpenMoney, that can help you categorise your bills at a glance, so you can see what you have to pay and what you can cut down on. You’ll be surprised with what planning ahead can do!
5) Keep an eye on Government communications, as new help is announced
Rishi Sunak announced on February 3rd, that 80% of all homes in England will get a £150 discount on their council tax bill in April, while all domestic electricity customers will get £200 in October off their energy bills.
Information provided on the Government website the gov.uk website states:
“The Energy Bills Rebate will provide around 28 million households with an upfront discount on their bills worth £200. Energy suppliers will apply the discount to domestic electricity customers from October, with the Government meeting the costs. The discount will then be automatically recovered from people’s bills in equal £40 instalments over the next five years. This will begin from 2023, when global wholesale gas prices are expected to come down.
Households in England, which are in council tax bands A-D, will also receive a £150 rebate. The rebate to bills will be made directly by local authorities from April. This will not need to be repaid. This one-off payment will benefit around 80 per cent of all homes in England”
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