Mythbusting October’s energy price hike

Bills have gone up but you’ll get some money back.

I know everyone has been talking about energy bills for months now, and hopefully regular readers here will feel like they’re across the changes.

But there’s still confusion out there (Liz Truss didn’t seem to get the price cap, which is a worry in itself). So this quick article should ensure you know what’s happening and whether you need to do anything!

energy price cap

Bills are going up!

Yes, there is a price freeze on the prize cap, but that doesn’t mean it’s staying where it was between April and September. It’s going to an average of £2,500 a year, from just under £2,000. Effectively it’s 27% more than you were paying, and double the rates from September 2021.

£2,500 is the average annual bill

This is where many people are still getting confused. It doesn’t mean that bills can’t go above £2,500 a year. It just means that a typical UK household, that uses the average amount of gas and electricity, will see a bill of that much.

But very few people will be bang on this. The size and type of house can have an impact. Larger homes are obviously going to use more energy, as will older or poorly insulated homes. You might also have a house which uses mainly electricity and little gas, or the other way around. There are even variations around the country.

The easy way to view the price cap is as a limit on the cost of each unit of energy, though there’s also a cap on the standing charge – an amount you pay each day even if you don’t turn anything on!

It’ll stay this high for two years

The price freeze is for 24 months, so charges for energy won’t get any higher or lower in this time. Of course the government could change again and a new policy announced, but for now it means prices will remain at their highest level yet for a good while.

The £1,000 “saving” is against what would have happened

You’ll have heard the PM talking about how households are saving £1,000 a year thanks to the price freeze. So how can thay be the case if bills are going up?

Well, before the new price cap for the next two years was announced, the cap was going to jump to more than £3,500, and there were predictions it could have gone above £5,000 (or more) in 2023.

So you’re saving £1,000 (more or less, depending on usage) against what bills would have been without it.

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Fixes will reduce too

If you’re on a fixed deal that’s higher than the new frozen price cap, you’ll see a similar cap applied to your unit prices and standing charge, though there’s a chance some really expensive fixes won’t reduce to the same level. Lower fixes will stay at the same price.

Most energy companies are also allowing people on fixes to exit penalty free if they’d rather be on the price cap tariff. You’ll get communitcations from your provider, so hold tight until that comes along.

You’ll get £67 extra off for six months

Back in May, an Energy Support Scheme was announced where every bill rather than person, whether you’re rich or poor or have one house or more, would get a £400 discount.

This is split into six payments of roughly £67, and the first one will come off your October bill. In fact you’ll probably have already been told about this by your provider.

It’s being managed differently by each firm. Some will deduct it from your direct debit, others will charge you the usual amount but refund this element. If you don’t pay by direct debit it will probably be added as creit to your account

You don’t need to apply for the £400

There have been loads of scam texts and emails claiming to be from the government or energy companies stating you need to claim the £400. DON’T! Since it’s per bill, not per person, it’s easy for this to be applied automatically. You don’t need to do anything.

The same goes for those eligible for extra support, such as the £650 payment for people on some benefits. It’s all automatic.

It’s not too late to take a meter reading

When prices went up on 1 October, you began to get charged at this new rates. But if you don’t have a smart meter, energy companies won’t know what you used before and after this date without guessing.

So providing a meter reading, even a few days into the month, will ensure you’re not paying the higher rates for the gas and electricity used before the hike. Or at the very worst only a few days could get mixed up.

The cap and £400 apply to prepayment meters

The unit price cap figures will be slightly higher if you are on a prepayment meter, meaning the average will be higher than £2,500.

You will also get the £400. Smart prepayment meters will have it automatically added while those who top-up manually will be sent vouchers.

Cutting use is still the best way to reduce bills

Don’t be deceived by the cap. Remember it’s still more than you’ve paid before and it’s not limited to £2,500. If you use a lot of energy spend more each year. If you want to bring your bills down you’ll have to use less energy.

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