Latest government announcement: energy price guarantee
You may have heard the cost of gas and electricity for the average household is going to be capped at £2,500 per year. It had been due to rise to £3,549 before the government made its announcement last week. But what does this mean for you? We asked our Moneywise team to give us a bit more detail about how the new cap might impact you.
What does this cap mean?
The first thing to mention is that it is the cost per kilowatt hour (kw/h) for gas and electricity* that is being capped and not the actual amount that you will pay. The figure of £2,500 is what a household would pay if they consumed the amount of gas and electricity used by an average household of 12,000 kw/h of gas and 2900 kw/h of electricity each year. If your household uses more or less gas and electricity than these amounts, your own household cap will be more or less than the average amount of £2,500. In other words, you could still end up paying more or less than £2,500 depending on consumption. By way of comparison, last Winter the energy cap was £1,277 for the average household. See the calculator link below – just enter your consumption or how much you pay by Direct Debit, as well as your region, and it’ll give you an estimate of what you’ll pay under the new energy price guarantee (this currently doesn’t include the £400 discount for all households).
The second important point is that the £2,500 average household energy cap applies to those households who do not have pre-payment meters. The cost per unit for gas and electricity for those using pre-payment meters will be slightly higher.
*The unit cost from 1 October will be 10.3 pence per kw/h for gas and 34.0 pence per kw/h for electricity and 1. Standing charges will be 28 pence per day for gas and 46 pence per day for electricity.
What if I’m on a fixed rate?
If you fixed your gas and electricity costs, you should still benefit from the reduced energy cap because the unit price for your gas and electricity should also go down (by 4 pence for a unit of gas and 17 pence for a unit of electricity). Meaning your fixed rate deal should be cheaper per unit of gas or electricity used from 1 October 2022 than it is now.
In many cases it will be cheaper to stay on your fixed rate deal than move to a variable rate deal, but this will depend upon the unit and standing charge that you pay for your fixed rate. You may still be better off switching to a variable deal if the unit and standing charge cost would be cheaper, particularly given that the price cap unit cost will be fixed until 2024.
What else do I need to know?
As just mentioned, the new price cap for energy will remain in place until 2024, which means there will be some degree of certainty about how much each unit of gas and electricity they use will cost. The energy cap was due to increase to above £5,000 for an average household in January 2023, so the announcement that it won’t is something of a reassurance.
Will this affect Cost of Living payments?
The government has also announced that the Cost of Living payments scheduled to be made will still be paid. These include payments for those on a low income (the remaining £324 for those on means-tested benefits, £300 additional Winter Fuel Payments, and £150 to those entitled to disability benefits), as well as the £400 payment to all households that was due to be paid over the Winter.
Different utility companies will apply this in different ways, it could be:
- Added to your bill as a credit
- Used to reduce your monthly Direct Debit amount over the Winter
- Added to your pre-payment meter directly
- OR, sent to you as a voucher if you have a pre-payment meter (but not a smart pre-payment meter). It is therefore important that your utility company has your current contact details so they can send your vouchers to you.
Beware of scammers
Please beware of a number of scams that are doing the rounds, whereby scammers send communications claiming to be from a utility company or Ofgem.
Consumer champions Which have up-to-date information about these scams on their website: https://www.which.co.uk/news/article/5-big-cost-of-living-scams-to-watch-out-for-agaTQ9M8g1hp
Action Fraud also has some useful information about the energy rebate scam on their website: https://www.actionfraud.police.uk/alert/energyrebatescam
Need further help?
Remember, our Moneywise team are here to help with any benefits and money advice:
Call: 0300 123 3399
We can also refer you to our Customer Support Fund if you’re struggling financially and have no other sources of help. For more details see www.ravenht.org.uk/customer-support-fund
See our related blog on Cost of Living Payments: https://www.ravenht.org.uk/2022/09/01/cost-of-living
Energy price guarantee calculator: https://www.moneysavingexpert.com/utilities/what-are-the-price-cap-unit-rates-/
Energy saving tips from Money Saving Expert: https://www.moneysavingexpert.com/utilities/energy-saving-tips