Energy price cap increases to £3,549 from October

There’s an 80% hike, meaning you’ll pay £296 on average each month.

When it launched in January 2019, the energy price cap was designed to save consumers money on their gas and electricity bills by introducing a limit on how much energy companies can charge you on their standard rate tariffs.

It sounded like good news, and it will have meant some households saved money. But for a while it was possible to get much cheaper deals by fixing – meaning those who did nothing were still paying over the odds.

Now thanks to the turmoil in the energy markets that’s all changed. With fixes sky high, the price cap is the cheapest option for most of us.

And cheapest doesn’t mean cheap. The cap has been substatially increased over the last year, with October hike adding 80% onto bills.

Here’s what you need to know about the cap and how much you’ll pay.

How the energy cap works

The cap applies to the price for your gas and electricity on your energy company’s default or standard variable rates. These basically can go up and down whenever the energy company likes. With the cap, the energy companies have to make sure their tariffs aren’t higher than the set rate.

It’s not a cap on the most you can pay for your bills. Insead the prices set on the cap are the maximum price per unit of energy you use. So any prices you see are based on a typical user. If you use more energy, you’ll pay more than the cap every year. Use less and you’ll pay less.

There are separate caps for gas and electricity, and each cap is also made up of a standing charge (a set amount each day) and a usage charge. Controversially, the standing charge has increased a lot recently.

The cap will also vary depending on where you live in the UK, how you pay (eg direct debit) and the type of meter (credit or prepayment). Prepayment caps are a little higher.

If you’re on a fixed rate deal the cap doesn’t apply and the price you pay won’t change until that fix ends.

How much is the energy price cap?

The latest announcement (in early August) is for an increase to the price cap from 1 October until 31 December 2022.

The new cap for a household with average use is £3,549 a year. That’s up by £1,778 or 80% from the current rate.

The total annual cap figure isn’t always the easiest to comprehend, so I think it’s easier to understand the price cap when you view it as a monthly direct debit. This is calculated by your energy company by taking the predicted cost for a year based on your previous energy usage and dividing it by 12. It’s not 100% accurate, but it’s a handy comparison.

For the latest cap the average monthly bill will be £296, which is £133 more every month that the current cap. That’s massive.

Comparing this to prices a year ago, and it’s three times as much. And if you were on a fixed deal, it’s likley you were paying even less.

How much will you pay?

Remember, the price cap figures are based on average use. If you use more than this averge you’ll pay more, if you use less you’ll pay less. Plus, don’t forget it can vary regionally so you’ll need to check where you live to see exactly what it’ll be for you.

If you want to get a rough quick idea, you can of course add 80% to what you pay at the moment. This doesn’t take into account the standing charge increase, or if you’ve got an accurate direct debit set up. But you’ll get a sense.

If you want something a little more accurate, Money Saving Expert has a handy calculator to estimate what you’ll be charged. You’ll need figures showing your historical energy use, which can be found on your latest bill.

How you can reduce your bill

It’s hard to do much other than use less energy. The standing charges will still apply, and bills will still be sky-high, but cutting back on gas and electricity will mean you pay less.

It’s worth giving accurate meter readings if you’re not on a smart meter. This will mean you’re more likely to have an accurate direct debit on current use, rather than what you used last year. It’s unlikely your energy firm will automatically change this, so you might need to ask. Don’t forget a direct debit does average the spend out over the year so you should hope to overpay in the summer and underpay in the winter.

Is any other help available?

We’re waiting for a new Prime Minister to be announced before any measures are revealed (if any). All we have at the moment are a £400 discount on bills over six months (£67ish a month) for all households, with up to £1,100 for those on certain benefits. I’ve written more about these here.

You can also talk to your energy supplier to see if they have support or grants available for customers. British Gas has a grant for non-customers too. I’ve written about your options and the consequences if you can’t or choose not to pay.

Will you pay more or less money?

If you’re on a variable tarrif

Broadly, anyone on a standard tariff will spending more from 1 October 2022.

If you’re already on a fixed tariff

Very simply, your prices don’t change during a fix. That’s because they’ve already set a price per unit of energy for a fixed length of time, usually 12 months. Existing fixed deals are likely to be less than the new price cap, though it’s worth checking.

If you move onto a new fix

It’s likely right now that most fixed deals available are going to be well above the new cap already. It could be there are fixes available for existing customers that might beat the predicted January increase. It’s hard to say if you should take these out. I’d recommend looking at Money Saving Expert’s regularly updated analysis as they’ve a whole team working on this.

How has the price cap changed?

As you can see from this table, the really big changes have happened since October 2021. Before this the average direct debit was under £100.

The latest hike is the fourth consequtive increase, which amounts to a 240% increase in two years.

DatePrice cap for a typical householdAverage monthly direct debitChange +/-
October to December 2022£3,549£295.75+80%
April to September 2022£1,971£162.25+54%
October 2021 to March 2022£1,277£106.42+12%
April to September 2021£1,138£94.83+9%
October 2020 to March 2021£1,042£86.83-7.5%
April to September 2020£1,126£93.83-4.5%
October 2019 to March 2020£1,179£98.25-6%
April to September 2019£1,254£104.50+10.2%
January to March 2019£1,137£94.75
Price caps since start in 2019

When is the next price cap change?

Until October 2022, the cap was reviewed every six months (in January and August) with new caps beginning in the April and October of each year. It’s now going to change every three months.

The price cap will next change on 1 October 2022, and we already know what this is (see above). After this, it’ll change again on 1 January 2023, and will be announced in November 2022.

It’s predicted that this could go above £5,300 a year. That’s a monthly direct debit of £442.

Price cap announcements & changes

  • 24 November 2022 announcement for 1 January 2023 change
  • 27 February 2023 announcement for 1 April 2023 change
  • 26 May 2023 announcement for 1 July 2023 change
  • 25 August 2023 announcement for 1 October 2023 change

5 thoughts on “Energy price cap increases to £3,549 from October

  1. I should add that I paid no exit fees. The exit fees for the new fix are very hefty, but waived if I stay with the same supplier.
    If you fix around October/November, the prices are likely to reflect the predicted January increase. If you are already on a fix, you are likely to get a good offer, though there have already been substantial increases since I fixed at the beginning of August. For existing customers on the price cap with my supplier, the offers are truly horrendous. 3 or 4 times higher than my offer, so this probably only works for those already on fixes.
    Again I stress, I am only giving my experience, not advice.

  2. Andy. I’m trying to understand how the price cap works for a medium / high user of gas and electric. My supplier just failed and I’ll be moving onto a SVR soon. I’m a high user of gas so will there be no benefit to me from the cap ?
    Thanks

  3. Andy, My current tarrif ends on 15th November. Should I opt to switch before 1st October or make the most of the 1
    Month’s deal?

    1. Hi Daniel, it’s hard to say but you will need to take into account any exit fees (though these are waived 49 days before your tariff ends). I’d expect the new rates to be so much higher that you’d save the difference by switching before.

    2. Don’t know if this helps. My fix was due to end on October 31 this year. My DD was down to £45. per month. I checked the latest figure for an new fix offered to me by my supplier and it came to less than £2000 a year, so I came off the old fix at the beginning of August and took it. It’s a 2 year fix. I’m now paying £148 a month and it should average £163 based on my current annual usage. I’m paying more than £100 a month more between now and the end of October than I would have done on the old fix. The new unit prices I am paying are slightly higher than the October price cap, so if I am paying less than £2000, I must be using a lot less energy than average.
      Where do I gain in all this? Hopefully from January 2023 onwards, when my costs will remain fixed and I won’t pay the new increases. I will need to save a bit over £300 to break even, but from current predictions, this shouldn’t be difficult and I’ll go on to gain. I noticed that that the latest offers on fixes from my supplier have already gone up by £70 per month since I fixed.
      This is just my experience and guessing and not advice, as it’s a bit like gambling on the futures’ market, but I hope it helps.

Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.