Money Wellness has confirmed it will update its free Cost of Living Calculator as soon as Ofgem announces the new energy price cap on Wednesday, August 26, allowing households to use their own spending figures to see how the change could affect their finances. The new rates will come into force on October 1 and remain in place until December 31.
How the calculator works
The Cost of Living Calculator asks people to enter details of their income and spending across household bills and other essential costs, including gas and electricity. Money Wellness says the tool will be updated following the announcement so households can see how changes to everyday costs could affect their budget.
It could be particularly useful because Ofgem has changed the amount of energy it assumes a 'typical household' uses when producing its widely reported annual price cap figure.
What the October cap could be
Cornwall Insight's latest forecast puts the October cap at £1,729 a year for a typical dual-fuel household paying by Direct Debit under the new consumption figures. That would be an increase of around four per cent on the current £1,663 figure calculated using the same benchmark.
However, Cornwall Insight calculates that the October cap would be around £1,941 using the previous typical household consumption figures. The difference does not mean households face an additional £212 on their bills. It reflects a change to the benchmark Ofgem uses to illustrate what the price cap means for a typical household.
Ofgem introduced new Typical Domestic Consumption Values (TDCVs) from July 1 after reviewing how much energy households use. The medium-use figure for electricity was reduced from 2,700kWh to 2,500kWh a year, while the figure for gas fell from 11,500kWh to 9,500kWh. This means headline annual price cap figures calculated under the new benchmark are not directly comparable with figures produced using the previous assumptions.
What the price cap actually limits
The price cap does not set a maximum amount households can spend on their energy. Instead, it limits the unit rates and standing charges suppliers can charge people on default tariffs. The amount someone actually pays depends on factors including how much energy they use, where they live and their type of meter.
Sebrina McCullough, Director of External Relations at Money Wellness, said: “People don't budget using Ofgem's typical household. They budget using their own energy bill.
“Ofgem's benchmark has changed, but your household hasn't. That's why tomorrow's headline figure won't necessarily tell you what the change means for your own finances.
“We're updating our calculator as soon as the new rates are announced so people can put their own numbers in and see what the change could mean for their household, rather than trying to make sense of a figure based on someone else's energy use.
“If you're already struggling with your energy bills, don't wait until the winter to ask for help. Contact your supplier and get advice early. The sooner you act, the more options you are likely to have.”
Current price cap and what to do before October
The current price cap runs from July 1 until September 30 and will remain in place until the new rates take effect on October 1. Under Ofgem's revised consumption figures, the current annualised figure is £1,663 for a typical dual-fuel household paying by Direct Debit. It is £1,796 for households paying by standard credit and £1,620 for those using a prepayment meter.
Energy UK has also highlighted the impact of Ofgem's change to typical consumption figures. It says some fixed costs are recovered through unit rates and, because those costs are now being spread over a lower assumed level of consumption, the change resulted in the electricity unit rate increasing by around 0.8 per cent and the gas unit rate by 1.3 per cent.
Money Wellness is urging households to check their latest energy bill so they know how much they are actually spending and take a meter reading around September 30 where appropriate. People are also being encouraged to check whether they qualify for the Warm Home Discount or other support and whether they are eligible to join the Priority Services Register. Those on a default tariff can compare their options once Ofgem has confirmed the new October rates. Households already struggling to pay their energy bills should contact their supplier as early as possible. Ofgem says energy suppliers must help customers who tell them they are struggling to pay and may offer support including repayment plans or emergency credit.
