Martin Lewis, founder of MoneySavingExpert, has issued an urgent warning to households following Ofgem's announcement that energy bills will rise again in October. The new energy price cap, effective from October 1, will increase by 3.6%, following a 12.6% rise in July. Lewis urged people to review their current tariff, as millions of households could see their bills climb when the cap takes effect.
Impact Varies by Energy Use
Lewis explained that the headline figure does not tell the full story, particularly for households that depend heavily on gas. He warned that the October price cap would arrive at an especially challenging time, as it will remain in place throughout the winter months. Average energy rates will be roughly 17% higher than they were in April, meaning households could face considerably steeper bills compared with earlier in the year.
There is some relief on the electricity front. The electricity unit rate, the amount households pay per kilowatt hour, is set to climb by just under 1%, while the daily standing charge will drop by approximately 4%. This means those using electricity only could see a minimal rise in their bills, while very low users may potentially witness their costs decrease.
Gas Costs to Surge
Gas is where households are likely to feel the greatest strain. The gas unit rate is set to surge by 8.7%, while the standing charge will increase by 2.2%. Lewis cautioned that those with high gas consumption could see their bills climb by significantly more than the 3.6% headline figure.
The price cap solely applies to standard variable tariffs, meaning those on their supplier's default tariff will feel the impact. Lewis noted that virtually every energy provider currently sets its standard variable tariff at the maximum permitted under the cap, so customers on these deals should brace themselves for price hikes from October 1. However, households currently on a fixed-rate or specialist tariff will remain unaffected by the new price cap.
VAT Change and Switching Advice
There is one exception worth noting: the temporary removal of VAT on domestic electricity is also drawing to a close on October 1. Lewis pointed out that those on fixed tariffs could therefore see their electricity costs drop by approximately 4.5% once the VAT change comes into force.
For those facing steeper bills under the price cap, Lewis's recommendation is to consider switching to a more affordable fixed-rate deal. He noted the cheapest fix currently on the market is roughly 7% cheaper than the existing price cap. Given the October price cap is increasing by 3.6%, an affordable fixed tariff could work out around 10% cheaper than staying on the price cap from October.
Lewis also highlighted forecasts suggesting the price cap could surge by a further 10% in January, though he emphasised this remains uncertain and hinges greatly on "wholesale energy prices and global events." On the balance of probabilities, he believes that locking in a fixed rate now is likely to save households currently on the price cap money in the long run. However, he conceded there remains a possibility that even cheaper fixed deals could emerge in the weeks ahead, should wholesale energy prices drop.
