Beat the 10% Energy Price Cap rise special – “no one should stay on the Pants Cap”

0:05Hello, I'm Martin Lewis and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. Today, it's a special. The energy price cap has gone up by 10%, meaning if you're one of the 85 % of the UK whose home is on the price cap, your bills will rise by 10 % too. So this is all about how to beat the price cap rise, or as I'm renaming it, the pants cap rise, because nobody should be on the price cap anymore. We'll start with the interview I did with Nagamanchetti on her Radio 5 show, but most of it is just for you lucky, lucky podcast listeners, as I really want to go through the gritty nitty of what you need to do.

0:47Included in this pod, why the energy price cap is rising even though wholesale rates are dropping and how you can use that to beat the 10 % energy hike. Whether you should fix, go for a discounted tracker, an EV tariff or even Octopus's special 30-minute price change deal, I'll tell you which one's right for you. How you can lower your standing charges if you're a lower user The outrage that many older, vulnerable customers will pay more to boil a kettle than I do And there's lots more. Let's play the theme tune

1:43Shall we start with the energy price cap? Explain that. Right. So the energy price cap dictates the price that 85 % of homes in England, Scotland and Wales pay. It does not apply to Northern Ireland. That's because it sets a maximum standing charge and unit rate, although it is regionalised. It isn't a UK rate, it's a regional rate. A maximum standing charge and unit rate that firms can charge on their standard tariffs, their default tariffs. It does not apply to other tariffs. Now, people say to me, how do I know if I'm on the price cap? My honest answer is, if you're not sure whether you're on the price cap, you're on the price cap.

2:17Because to not be on the price cap, you need to have fixed or be on an EV tariff or have actively moved to a specialist tariff. So if you haven't done that, you're on a price cap tariff. Now, we use the word price cap because it sets a maximum that firms can charge on their standard tariffs. but in reality they all charge the maximum. So it is effectively what we had is regulated pricing for 85 % of homes in the UK. Now I have today decided that we are renaming the price cap the pants cap because it is not a good rate. In fact, nobody listening who is capable of switching and understanding should be on the price cap.

2:58Get off the price cap is my message today and this is the reason why. The energy market has been perverse for a long time, but it's particularly perverse right now. The energy price cap we are about to get starts today and ends on the last day of the year. So it lasts three months and then you get the January price cap. So it moves every three months. But the underlying mechanism for deciding what the price cap is, is based on wholesale rates. Those are the rates that gasoline electricity providers pay. and this price cap is based on wholesale rates between the middle of May and the middle of August and wholesale rates peaked in August and guess what they've done since?

3:39They've come down. So what we have now is a time lagged price cap where the price cap is going up even though wholesale rates are actually coming down right now and the reason this is important is while the price cap is time-lapped, the switchable deals, the deals that you can move to, they are able to take advantage of the current short-term lower wholesale rates. So you have a much bigger differential right now between the price cap and what you can switch to than we've seen since probably before the crisis, which is why I'm calling it a pants cap because you shouldn't be on it. So, come January, the lag will mean that it will take in the current fall in wholesale price.

4:24But if you switch now off your standard variable to a fixed rate, that is less backwards looking. It's more immediate. So it's already taken in that wholesale price drop. Yes, but I'm afraid to disappoint you. Your logic was impeccable. Have everyone been talking today? You're the presenter who's understood it most. I want to give you applaud it for that. Go you. But then you're very bright. It's such a charmer. Go on. Look, so here's the thing. So from what I've said, you'll be thinking, so the price will be coming down in January because of the time lag. But remember, this is averaging. What we have right now is a short term drop in wholesale rates, whereas the January price cap is set for the three month average from the middle of August onwards.

5:08Now, I have two prediction sources that are pretty good at the moment. One, which is EDF, is saying in January it will go up by 0.2 % compared to the October price cap. The other is saying, which is Cornwall Insight, is saying it will come down by 1%. In other words, much of a muchness, it's going to be roughly the same from January to March as it is right now, the new 10 % higher. And in fact, if we go out further and it gets more difficult because we're in the assessment period for the January price cap. Once you get to the April price cap, we're not in that assessment period yet. It's too early.

5:43So it's much more crystal ball gazing. But the predictions then are it will come down a smidge. And even by September next year, the current prediction is you will be paying substantially more than you were yesterday before it went up 10 percent. So the fact that you can now lock in a fix at below the rate of the price cap yesterday, before it went up 10%, you can lock in for a year with a guarantee and you get absolute peace of mind means the very strong money is that will save you substantially compared to being on the pants cap. Can we have a word of caution, though, just in terms of absolutely we're all about saving money?

6:23So if fixing now, considering what you've explained to me, makes perfect sense. And if I will be going back and looking at my bill. But that doesn't mean that you shouldn't prepare, perhaps, for a shock when you come off that fix, because it's unpredictable. It is. But I always find that a very interesting point. People often say, but the problem with the fix is you'll have a big bill shot when you end. No, no, I don't mean that, because you should, you should, you know, put aside what you can afford kind of thing. but always have in mind. Well, your fix will come off. But remember, if you didn't fix, then you'd be paying more even beforehand and you'd still be on the same rate when your fix ends as you are when the fix goes.

7:00So yes, in a year's time, I'm hopeful that energy prices may have come down a little bit compared to where we are right now. But we don't know. We are in a huge position of volatility. Now, I need to make a point. I could list to you, and in fact, I'll do it for you right now, outfox the market, British Gas, Eon, OVO. Worth certainly saying to you, Not all of those require a smart meter. I know some people don't want smart meters. Some will allow you to fix without a smart meter. If your firm's saying you need a smart meter to get its fix, well, there are other firms that won't say that. But I cannot tell you which is your cheapest.

7:33I can tell you which on average is the cheapest across the UK. But your cheapest depends on where you live and how much you use. And therefore, you should be going onto a comparison site and preferably one that is whole of market by default. and what I mean by that is Yeah, explain that phrase. Most comparison sites, in fact almost all of them, hide tariffs that don't pay them unless you click a button to see those tariffs. So I would go on one that is whole of market. In other words, it shows all tariffs by default and when you're comparing, you want to make sure you're seeing all the tariffs out there, not just the tariffs that the comparison site is being paid to show and that's important.

8:12I'm afraid I can't give you which sites do that because of compliance reasons. so your people have to work it out for themselves. OK, well, that's not too hard these days on the internet. Let's hope so. Can I ask you a question on behalf of Tim in London? Yeah, go, Tim. I don't know how much direct advice you can give, but you can give an idea if he's moving in the right direction. Tim says, Hi, Martin and Naga. I switched to octopus with no penalty yesterday from Sainsbury's E.ON variable. Did I do the right thing? Well, he hasn't said whether he's switched to... From a variable to a variable.

8:44So, Octopus is actually very interesting because Octopus has its variable tariff, it has its fixed tariff, and it has its tracker and agile tariff. Can we assume he's got, just for the sake of discussion, can we assume he's gone to fixed just because he highlighted variable with Sainsbury's Eon? So, the Octopus fix is a 15-month fix. It's probably six in the list of cheapest, but it is three months longer. So, if he's gone to that, that is certainly very likely to save him over going on a price cap. It will certainly be cheaper than the price cap for the next six months of high use. After that, I still think it probably will be cheaper.

9:20And it is probably a good move, although it's not the cheapest fix on the market. He went from variable to fixed for 15 months. So it was the octopus fixed tariff, I thought it was. I mean, it is worth me saying that fixing is the right move for most people. That is the easy, sensible decision. There are actually other options out there. There are discounted tracker tariffs that you can get. There's the Octopus Rapid Price Change Tariff, which are very good for sophisticated users. I say that primarily now because you need to do some reading on that. But because those people who are on those tariffs will say, what about my tariff?

9:50You know, it's really good. And it is, but it's a sophisticated tariff. The Agile tariff, the price changes every half an hour. Sometimes it can actually pay you to use electricity if you're in the middle of the night because wind power is generating. But it can also be very expensive at other times. So you have to know what you're doing to use that. And there are EV tariffs out there. But the big message I think most people need to take from this, if you're on the price cap, you're likely paying massively too much over the next year. It's a parents cap. If you want peace of mind, fix. Now, after that, Naga and I went on to talk about vulnerable people, the difficulties that they have in changing tariff and also how that interrelates to getting rid of the winter fuel payment for pensioners.

10:31I'm going to play that for you at the end of the podcast but I want to carry on keeping this focus on the pants cap has gone up by 10 % what should you be doing about it you've got lots of questions coming in and podcast producer Simon's going to ask me those in a minute but first let me just run through those four options I talked about in a little bit more detail OK, so the first option and we've already discussed this in a lot of detail and probably the easiest and safest route for most people is to fix now because the cheapest fixes that you can get today are cheaper than yesterday's price cap before it went up by 10 % and you can lock in for a year.

11:15That's a very simple way to make sure that your prices aren't going to go up and to save money in the meantime. Now, it's worth saying that fixes are designed to give you peace of mind that you know exactly what you'll pay for a set time. But just to be clear, it's the rate that you pay for energy, the standing charge and the unit rate for gas and electricity that is fixed, not the total price. Some people get this confused. So even if you're on a fix, if you use more, you will pay more. If you use less, you will pay less. And there are a whole host of companies out there offering fixes very substantially cheaper than the current price cap, between 6 % and 10 % cheaper.

11:57You may want to stick with your current firm if you want to and see what it's offering. I would strongly suggest, because they're all big firms these days, that it's worth doing a comparison and see who will offer you what out there. There are a lot of firms offering cheap fixes at the moment. Obviously, there's always one that's cheapest. And on average, that's Outfox the market, just followed by British Gas, though these change by the day. They pull tariffs and withdraw them. So you need to check. So you do have a decent choice. I know many people at the moment are just fixing with their existing company because they think, oh, I'll just stick with it.

12:29There are price differences out there. It can be 5 % or 6 % difference. And I think if you're going to lock in a price for a year, what you want to do is lock in at the cheapest possible price that you can get. Now, some people have said to me, OK, but when I do a comparison, all it's doing is showing me the price of the fix compared to the price of the current price cap. And that ends in December. Agreed. That's correct. but just worth noting that it's predicted over the next year you'll pay roughly 2 % less than the current price cap if you stick on the price cap because of the way it's changing and it is likely to come down a bit.

13:02So if you just want to do the maths in your head, let's say it's telling you'll save 9 % but then very roughly over the next year the expectation if the predictions come true, and there is some crystal ball gazing as I always say, is you'll save around 7 % in reality but you also get the peace of mind that you know exactly what you're going to pay and you have a guarantee it won't go up. And if, as is unexpected, substantially unexpected, energy prices did get radically cheaper from the April price cap onwards, well then you pay the early exit fee and you just ditch it. And the early exit fee on most tariffs is around£25 per fuel.

13:40So if you're on gas and electricity, that's£50. That is worth checking and factoring in your should I fix decision. Some people have asked me about longer fixes. There are some longer fixes available, more than a year, but they're not that cheap. And frankly, even the longest price cap predictions only run for a year out. So with the market this volatile, it's simply impossible to tell you whether they will turn out to be good or not. And at the rate they're at at the moment, I would suggest, you know, they won't turn out to be the best unless we have another energy crisis. so that only really for those people who are sitting going, I just want to know for as long as possible that my bill won't go up too much.

14:19In that case, you might want that surety that a long fix gives you. Now, my second option after fixing is to get a discounted price cap tariff. These are tracker tariffs and they can be especially good for lower users, but I mean really a lower user. Now, bizarrely, while I'm calling them discounted price cap tariffs because they're not standard tariffs, they're not on the price cap, They're just tracking the price cap. So it's a voluntary thing that they're tracking the price cap rather than them actually being on the price cap. Hope that hasn't confused you too much. But effectively, let's just think of them as a discounted price cap tracker tariff.

14:53So you've got the EDF Insure one, which I think is the main one people who are looking at that you should be looking at. The key to it is its unit rates, the cost for each unit of gas and electricity you use, are the same as the price cap in your region. But the standing charge, the daily charge that you pay, the daily poll tax that you pay just for having gas and electricity, is over a year£50 lower. Now, having done the maths, this will only work out cheaper based on the predictions over the next year than fixing if your overall usage is less than roughly£700 a year. So it's really only for the lowest users for whom the standing charge makes up a big proportion of their bill.

15:36There is the Eon Next Pledge tracker as well, which lowers unit rates by about 3%. But with the differential between cheap fixes being so much cheaper than the price cap right now, that doesn't seem worth it to me for most people. But if you're thinking, I don't want a fix, I want to stick on a price cap, well, you may as well go for the Eon Next Pledge if you're a higher user, because it's a price cap with unit rates 3 % cheaper. Option number three is those octopus tariffs that I mentioned before. These are highly volatile, but they've got potentially the biggest savings and they're good for sophisticated energy users.

16:12Now, Octopus has two tariffs. You can only get them if you're an existing Octopus customer. Spoiler, trick around that. Simply move to Octopus standard rate. And then once you're on Octopus's standard rate, then apply for the Agile or Tracker. They've been around for a long time, so I don't see any reason why they would be pulled. But they have occasionally been waiting lists, but most people should be able to get them. With the tracker tariff, which can be used for gas and electricity, it moves daily. So the price moves with wholesale rates every 24 hours. It's been 31 % cheaper than the price cap on average over the last year, though in recent weeks it's been hovering around the price cap.

16:49So you have to understand that you could be paying more than the price cap on certain days and you have to be willing to accept that and cope with the volatility. and then that is exponentially so when it comes to the agile tariff which is an electricity only tariff where the price changes every 30 minutes you need a smart meter to do that and it's based on wholesale rates so who's this good for it's good for people who can shift their electricity usage to the half hour so if you've got storage heaters you use at night or you're charging electric vehicle at night or you're you've got something that you're heating i don't know you perhaps you have a child with disabilities and you need to charge their wheelchair or have heating on, or other uses that you can switch to night, because it tends to be cheapest between midnight and around eight in the morning.

17:34Sometimes it's ludicrously cheap. You know, you're paying fractions of a penny per kilowatt hour. Then that can be good for you. But equally, there will be other half hour periods that are extremely expensive. So you have to be almost committed to monitoring what the rate is at a particular time and know what your usage is to do this. So it is a very cheap tariff for those who use it right, but you have to have a sort of sophisticated energy use to do it right. And then there's option four, which is get a tariff for your electric vehicle. I'm not going to run into all those details at the moment because there are so many of them out there and there are good guys online to them.

18:13But you've got two choices, really. you've got an add-on tariff where you can only charge your electric car on the cheaper rate, and they tend to be the cheapest rates, but you don't get the advantage of other things being cheap. Or you've got a two-rate tariff where effectively your energy usage is cheaper overnight, and therefore you don't just get your electric vehicle charged cheaper if you charge it overnight. Everything else you have in the house is on a cheaper rate, but that rate isn't quite as low as the electric vehicle-only tariffs in the add-on. So it depends on your other energy usage.

18:43You might be saying, isn't that similar to Octopus Agile? Octopus Agile, the rate moves every half hour and tends to be cheaper at night. With these, you have a fixed rate during the day and a fixed rate at night for either charging your electric vehicle or for everything. Octopus Agile is a volatile rate that moves. So those are my summary of the four big options. I hope that made sense. Now, let's get someone else talking. I've got podcast producer Simon with me and he's got lots of your questions, which I will try and answer. What have you got for me, Simon? Yeah, I've had loads of questions coming in, actually.

19:16Rob asks, I assume if you're already on a fixed rate, then the 10 % rise will not apply to that account. Absolutely. That's the point of a fixed rate. The rate you pay, the standing charge and unit rate, is locked in for the period of the fix. It cannot go up. It cannot change. I mean, arguably, they could bring it down, but they never do. So, yeah, you are not affected by the 10 % price cap rise. And, in fact, just to take it a little bit broader, even if you weren't on a fix, If you were on a different type of special tariff, like an electric vehicle tariff or any other specialised tariff, they are not affected by the price cap.

19:51The price cap is only on a company's default, its standard tariff. Now, to be fair, 85 % of people, 85 % of households in England, Scotland and Wales are on those. But it only dictates those standard tariffs, the variable tariffs that are available out there, the standard variable tariff. Jay Goh wants to know if it's a good idea to stick with the Eon tracker how much lower are my fixed deals I'm only using two to three kilowatt hours per day electricity especially when it's sunny so my bill is standing charge anyway it's an interesting question because you have the EDF tracker as I've mentioned which is tracks the price cap but with a discount on the standing charges of 50 pounds a year and you have the Eon Next tracker that tracks the price cap with a discount on the unit rates of 3 % under.

20:38So if we establish right now, just let's do some very basic maths together. The difference between the new price cap and the cheapest fix is around 9 % or 10%. The new price cap is 9 % or 10 % more expensive than the cheapest fix. You are on the Eon Tracker, which is effectively the price cap but 3 % cheaper unit rates. So therefore, your deal is 7 % more expensive than the cheapest fix at the moment. The slight difference is, if energy bills were to get cheaper, as there is a chance they do from next April, after that point, with the 3 % discount you've got off the price cap, your deal could be cheaper from next April.

21:25But I would always be looking at my October to March prices because that's the heavy use period. And that's when you really want to make sure that your energy is on the absolutely best deal. So, I mean, purely on a maths basis, I think you would probably be better off on a cheap fix than sticking on your tracker. But if you're a very low user, I'm not sure whether in pounds and pence it will be that big a saving for you. The other thing to look at is if you are a very low user, under around a£700 a year cost, then you'd probably be better off on the EDF Ensure tracker, which discounts the standing charge rather than your tracker that discounts the unit rate.

22:06I hope you followed that. I suspect many other people might be turning off. We'll go to a different question. Hattie wants to know, what can you do as a student renting in non-bills included flats? Can you do the same as everybody else or is it different as you're normally there only for eight to ten months? Well, all renters are legally entitled to change the tariff that they're on. What you're not allowed to do without landlord's permission is physically change the meter. So, for example, moving from a prepayment meter to a normal credit meter or vice versa, you couldn't do. But within that, you are allowed to change tariffs.

22:40Now, therefore, you are allowed to switch and you could go to a fixed deal. I think because you're not there for the full year, the correct etiquette, even if you are allowed to do something else, is to look for a fixed tariff with a low exit penalty if somebody wanted to move out of it. So there are some with no exit penalties, some fixes with no early exit penalties. So you can fix and you can leave them without a penalty at any point. Or there are some with£25 per fuel. If it's more than that, I think that's a bit disingenuous if you're a student and only there for 10 months. However, there is another rule that might help you if you're looking at the timings here.

23:15Everybody needs to know this. Everybody who's fixing needs to know this. They cannot charge you the early exit penalties within the last 50 days of your fix. So technically, that's day 49 before your fix and afterwards. You can't be charged those early exit penalties. So if you're staying there for 10 months and we add on 49 days, that's almost a year anyway. in which case whoever's coming in after you even if you did have early exit penalties if they wanted to leave them and it depends how the contract's structured whether it's in your name or the property's name so it does all get a little bit complicated they could leave them without early exit penalties.

23:50Sue asks, we've got our house up for sale should I still go for a comparison and fix our energy with British Gas or wait until we move? It depends at what point you are in the process I mean if it's on the market and it isn't going to sell then you want to make sure that your tariff is as cheap as possible if you're going to be going soon then you don't necessarily want to lock the new customer in. I would have to check technically how it is structured when you sign up for a contract. I think the issue would be the exit penalties because I don't believe that your energy contract can lock in the next customers in an owned house onto the same deal as you.

24:25I think they would go to a standard tariff once you moved in on that basis. So I don't think that's a problem, but you might have to pay an early exit penalty for leaving. So I would probably suggest, and you can hear I'm giving myself some wriggle room on that. I'd want to check that. I want to double check. We'll come back in the podcast next week and I will do a check on that particular one. But I would suggest, again, you go for something with no early exit or low early exit penalties, which just means it isn't an issue. Early exit penalties are you decide you're going to leave because it isn't a good value or because you're going somewhere else, you pay them.

24:56Whereas if you're making a big saving and the early exit penalties are limited, so you pay the early exit penalties. So what? And what's worth noting is pre-crisis, early exit penalties of£50 dual fuel when a typical bill was£800 a year well that was a reasonable percentage that was what 6 or 7 % now when a typical bill is nearly double that the early exit penalties if they're still£25 per fuel or£50 total are only 3 % so actually you don't need that bigger swing in value of being able to get a cheaper deal before you can easily wipe out the early exit penalties if they're cheap early exit penalties we've actually got one on exit fees from Becky She says she's on a fix with Octopus that finishes on the 24th of November.