Personal finance expert Martin Lewis has clarified the '49-day rule' for customers of major energy suppliers including Octopus Energy, British Gas, E.ON Next, OVO Energy, EDF Energy and Scottish Power. His comments come as households across the UK face the prospect of significant bill increases.
Energy bills are predicted to surge by 25% in January, according to Bloomberg Economics. This would mean roughly an extra £427 added to the £1,723 energy price cap due in October, pushing it up to £2,150.
What is the 49-day rule?
During his 'ask me anything' YouTube session this week, one viewer asked: "My current fixed tariff ends on December the 18th. Should I wait for the 49-day rule or change now?"
Mr Lewis explained: "The 49-day rule is the rule that says you cannot be charged early exit penalties within the last 50 days of your fixed tariff. So, at that point, you're free to do a comparison and switch. So, should you wait? Yes, absolutely. There's no point in paying an exit penalty."
He cautioned against rushing to fix rates in response to the predicted January rise, noting that the price cap is based on past prices. He said: "The price cap is based on past prices. We are in the assessment period for January now. Today's new October price cap started today, which was about an assessment from mid-May to mid-August. It's not based on today's prices. It's based on past prices."
Wholesale rates and Middle East conflict
Mr Lewis pointed out that fixed rates depend on world wholesale rates, "primarily and mainly about what's going on in the Middle East." He added: "It is just as possible it will be better than it is worse because wholesale rates are peaking right now or just off the peak as it happens to be."
He said: "So the idea that you would rush in to get a fix now when we're at a peak because the price cap which is based on past prices is going to get worse in January doesn't bear logic out. There is no right answer. I cannot tell you what will happen to wholesale prices."
His advice was: "I'd take the bird in the hand of the cheap price that you've got because if you fix before you're on a cheap price as long as you can definitely not pay an early exit penalty and cross your fingers and keep an eye on for a cheap fix."
Energy costs are being driven upwards by the worsening conflict in the Middle East and disruption to oil and gas supplies via the Strait of Hormuz. Ofgem's price cap places a ceiling on the maximum amount suppliers can charge customers per unit of gas and electricity consumed.
Ofgem response
New Ofgem chief executive Tim Jarvis said: "We know many households remain concerned about energy costs and the challenges they may face this winter."
He added: "Ofgem will continue working closely with government, suppliers, consumer organisations and other partners to protect consumers, support those most in need and ensure the market works as effectively as possible."
He further stated that the regulator needed to "evolve" in order to support the UK's transition to a more sustainable energy system, including encouraging investment and reform.
