Bills now won’t increase to £3,549 in October – but they’ll still go up

The government has, as expected, frozen the energy price cap. This means that bills won’t go up by as much as expected in October and January. But they will still be higher, and they’ll stay high too. Here’s what you need to know.

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How much is the energy cap freeze?

The average household energy bill will be capped at £2,500 a year for two years from October, under an Energy Price Guarantee. Remember, the price cap is not about the most a bill can be, it’s about how much each unit of energy and the standing charge can cost.

So the £2,500 is based on a typical household’s energy usage. Your personal bill could well be higher or lower, depending on whether you use more or less electricity and gas than average.

Also, this cap is likely for people who pay by direct debit. Usually, the cap is slightly higher if you pay differently or if you have a prepayment meter. Also, it can vary around the country.

So just take the £2,500 figure as a guide. It’ll be very different for you.

What other help is on offer?

This change is in addition to the £400 “Energy Support Scheme” help announced by the previous government. With this £67ish will be taken off bills (or refunded after payment) for six months starting in October.

The additional support for those on some benefits, which could total an extra £1,100 for those eligible for all parts of this, will remain. That’s £650 for people on things like Universal Credit and Tax Credits (split in two payments), £150 for those on some disability benefits and £300 for most pensioners.

Will the freeze save households money?

This new cap is down from the figure of £3,549 that Ofgem recently announced to start on 1 October, and will also prevent the predicted increase to beyond £5,000 in January 2023.

Factoring in the £400 support, it effectively means the price cap will be £2,100 for the next 12 months, then increase to £2,500 a year later.

So from that point of view, it could save the average household more than £1,000 over the next year.

However this new level is still higher than the current cap of £1,971. In fact it’s a 26.8% increase So, despite the freeze, you’ll still see your bills go up (assuming you’re using the same amount of energy).

£2,500 is also more than twice the number set 12 months ago, so it means bills are still massive compared to what we’ve been used to in recent years.

How much more will bills be?

The increase to £2,500 is 26.8%, so you could apply that to your current direct debit to get an idea of what you’ll be paying each month for the next two years.

Then if you remove £67 from that, it’ll give you an idea of your bill for the next six months.

Of course, your direct debit is estimated based on historical energy use. If you use less over the coming months then the real charges will be less. And if you’ve used less this summer, then you’ll have built-up credit in your account.

So while your direct debit will likely increase, it could be you can reduce this a little to reflect actual use. Likewise it goes the other way if you’ve used or use more.

MoneySavingExpert has produced a calculator to give you a better sense of standing charges and unit prices based on where you live here.

Who will benefit from the price freeze?

This new cap applies to every single home energy bill in England, Scotland and Wales. And it’s the same rate too. That’s regardless of the household income.

Households in Northern Ireland will get the equivalent support, though it’ll be processed differently.

What if you’re on an energy fix?

Those on fixed deals will be able to exit penalty free and move to the variable rate (at the new price cap) or will see the fixed tariffs reduce. The reduction will be at most to the same levels as the price cap, though some could still be more expensive. Keep an eye out for more information from your supplier on this.

Do you need to do anything?

There’s no need to apply for the cap or change your tariff (unless you’re on an aforementioned fix and want to move over). It could be that your direct debit was recently changed to cover the previously announced higher October cap but hasn’t been reduced yet. If so it’ll likely be too high, so ask your supplier to change it. It’s made slighly more complicated by the £67 deduction on most bills for the next six months.

What about oil and heat pumps?

Those who don’t get energy the traditional way will get extra cash. This will be £100 for those using heating oil and LPG (Liquified Petroleum Gas), though it’s not clear how it’ll be handed out.

There will also be support for those who pay bills direct to landlords, caravan parks and similar “all-in” methods, through the business energy caps.

What about businesses?

There will be a six-month guarantee on energy prices for businesses at the same rate for households. It’ll be reviewed in three months so see if it’ll continue for businesses the Prime Minister described as “most at risk”, including hospitality.