Households could save up to £173 a year by locking into a fixed energy deal before the October price cap rise pushes typical annual bills to £1,723. Millions of homes are braced for another increase in bills from October, with the typical household's annual energy costs set to jump to £1,723.
January price cap forecast
Analysts at Cornwall Insight are forecasting a further 9% rise in the energy price cap in January, which would push the typical annual bill up by another £149 to around £1,872. The January figure is not yet certain and will not be officially confirmed until November. But the prospect of another increase is likely to encourage households to examine whether they can beat the price cap by switching tariffs now.
Energy regulator Ofgem has itself highlighted the potential savings available from fixed deals. It says tariffs are available at £100 or more below the October price cap. The cheapest deal identified in the latest comparison was a fixed tariff from Fuse Energy costing £1,550 a year for a typical-usage household. That is £173 less than the October price cap and £113 below the current cap. Fixed tariffs generally guarantee the unit rates and standing charges for a set period, meaning households have greater certainty about their bills.
Who is affected
Around 11 million homes, or roughly 35% of households, are already on fixed tariffs and will be shielded from October's price cap increase until their deals end. The warning about January makes the decision particularly important for households worried about being hit by another rise just as winter heating demand increases.
However, consumers should not automatically switch without checking the small print. Gareth Kloet of Go.Compare advises households to check how long is left on their existing deal and whether an exit fee would apply before moving, the Guardian reports. There are also other fixed tariffs offering savings of more than £100 compared with the October cap, with deals available from suppliers including Co-op Energy, Octopus Energy, E.ON Next and Ecotricity.
October changes and VAT cut
The figures come as households prepare for the second sharp increase in energy costs in just three months. Bills rose by 13% in July and will increase by another 4% from October 1. The new cap will apply to around 22 million households on default tariffs. It comes at an awkward time for families, with colder weather likely to mean more heating and higher energy consumption.
There is, however, one piece of relief coming in October. The Government is temporarily cutting VAT on domestic electricity from 5% to zero between October 1 this year and March 31, 2027. The measure is expected to save a typical household around £45 a year and the reduction has already been factored into the new price cap. The saving will also apply to households on fixed tariffs, with suppliers automatically applying the lower rate to bills.
Additional support and advice
Ofgem says households with smart meters may also be able to access tariffs offering cheaper electricity outside peak periods. Consumers should also check whether they qualify for support such as the Warm Home Discount, which is due to reopen in October and provides a one-off £150 reduction on an electricity bill for eligible households.
But with wholesale energy prices capable of changing before January, there is no guarantee that Cornwall Insight's 9% forecast will become reality. The January price cap will only be confirmed by Ofgem in November. Households considering a fixed deal should therefore compare the total cost against their current tariff, taking account of their actual energy consumption, contract length and any exit charges. With the October rise already locked in, however, the potential £173 annual saving offers a powerful incentive for households to shop around rather than simply accept another increase in their bills.
