Energy bills: Should you fix your tariff? What to do now

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The pandemic brought us all to a standstill and as we started to recover, the demand for gas began to increase. Demands couldn’t be met due to a shortage in supply and gas prices increased dramatically in 2021. This in turn has forced lots of energy suppliers in the UK to go bust and most of us are paying extortionate amounts for energy. The government is announcing a plan involving a new cap for energy bills. Should you fix your tariff now?

In January 2019, the Office of Gas and Electricity Markets introduced an ‘energy price cap’ to stop people from paying too much for their energy.

A cap means there’s a maximum amount that energy suppliers can charge for their energy, and it’s reviewed twice a year in April and October.

The UK energy regulator raised the energy price cap to £1,277 by up to £139 a year for a typical dual fuel customer – the highest-ever maximum amount. Analysts also suspect a 50 percent rise from April.

Now, the government is expected to raise the cap again today at 11am and the change could leave some households paying thousands more for their energy every year.

Right now, half of British households are cutting back on their spending to cover energy bill costs.

The ONS has said: “Energy price rises are likely to hit lower-income households disproportionately, as they spend a higher proportion of their income on utility bills and are more likely to be in fuel poverty.”

A third of those who said their cost of living had risen are also cutting back on using gas and electricity.

The Treasury is reportedly considering giving £200 to every home in energy bill rebates.

This cash would then be paid back with higher bills in years to come.

Should you fix your tariff?

Anyone who is on a standard variable tariff, those who are on fixed deals that are about to or have already ended, and those whose suppliers went bust and have had to switch suppliers will be affected by this new cap.

The 4.5 million people on prepayment meters are subject to a different cap, which would see the average household paying £1,309.

The rise in bills will allow struggling suppliers to afford the sky-high cost of gas, but what do consumers do to get a cheaper bill?

You might assume that the best thing to do is to switch suppliers, but money-saving expert Simon Lambert for This Is Money advised doing nothing.

If you try to shop around for better deals, you probably won’t find any, according to Mr Lambert.

He wrote: “An energy comparison of the limited deals on offer shows that every single fixed rate on offer to me is at least 80 percent more expensive than the current price cap and 20 percent more than the new one is expected to reach.

“I’d simply be locking myself into overpaying for months and even if the price cap goes up again next autumn – as it very well may do – I’d still be lucky to break even.

“My plan is, therefore, to do nothing (and make sure that our energy-inefficient 1960s home leaks much less energy when we eventually refurbish it).”

Money Saving Expert’s Martin Lewis called for Brits to “do nothing” since costs went up in 2021.

He explained in a Youtube video: “All I could give you (in October 2021) was a crossed-fingers piece of advice. And that was: treat the price cap as a six-month fix.

“The price cap is a misnomer – it’s not really a cap on your prices, it’s a cap more like on the unit rates of energy. And we knew they were locked in until at least April 1, 2022 so that’s a six-month fix.

“And in that time, I said let’s hope things get better, cheaper deals come back, and you’ll be able to lock in cheaper in the future, so there’s no point in paying more now. Well looking back, it hasn’t got better, hope didn’t materialise, it’s got worse and worse and worse.”

In early October 2021, the cheapest fixes were about £1,580 a year but by the end of November, they were about £1,850 a year (when previously they would be about £1,630 around this time of year).

Mr Lewis said: “The earlier you fixed in October, the more of the relatively cheap current price cap you’ll be giving up in order to get your fix.

“If we assume that the price cap will be £1,925 a year and it would stay that in October, then it’s very likely you were better off doing nothing.”

The money-saving expert concluded that right now, fixing probably isn’t the best idea unless you can get a fix right now that was going to be “what we expect the price cap to go to on April 1” (which is about £1,925).

He said: “I wouldn’t be looking at fixing now unless I can get a fix that was no more than 40 percent-ish above the price cap. That’s what I’d say. Think of that as a rough number – 40 percent above the price cap if you want price certainty.

“Now, if you’re on a cheap fix now, it’s still the price cap that matters because that’s the price you’ll go to when your cheap fix ends.

“So, when the cheap fix ends, you’ll look at the price cap. And the cheapest open market tariffs right now are around 70 percent more than the price cap, so you wouldn’t really look at those.

“Now I may be persuadable, if someone said to me: ‘I really want price certainty and I’ve got something that’s 50% above’, well, if we do see a rise in October that may well be a winner in hindsight. So, I certainly might stretch to the 50 percent mark, but I certainly wouldn’t stretch to the 70 percent mark.”

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