Bonus Mini-Pod: Energy Price Cap rise

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0:22Hello and welcome to this special urgent edition of the Martin Lewis podcast on the back of today's news that the energy price cap is to rise again in January. So what does this mean for you? What What should you do about it? Bracket spoiler alert. You should fix. And the big question I keep being asked is all about will standing charges come down? I answered all of those in my interview on Five Live Breakfast this morning. So have a listen. As we've been hearing, the energy price cap has gone up with bills for a typical household rising by£21 a year in January. Money saving expert Martin Lewis is here.

0:58Morning, Martin. Good morning. Hello. I'm never a fan of that typical bills thing. You'll remember that. Exactly. So let's not do that. Let's talk about it in meaningful terms to people. How would you put it? Ofgem's price cap is rising 1.2 % on the 1st of January, on the top of the 10 % rise we've already had. So for every£100 you're paying for energy now, you will pay£101.20 on average from the 1st of January. And what's really important for people to understand are the current predictions are, because the price cap moves every three months. It will rise again by a couple of percent on the 1st of April, drop slightly in July, drop slightly again in October.

1:38But if you look across the next 12 months, that means it is predicted even after it's dropped twice next October, it will still be more than it is now. So over the next year, if the predictions followers were expecting, you will be paying more than you do right now for energy. and right now is 10 % higher than it was before the 1st of October. Now, the way that the price cap is actually being increased this time, the standing charges are staying flat, the unit rates are going up. So remember, the energy price cap isn't a cap on the total amount you pay, it's a cap on the amount that energy firms on their standard rates, which is pretty much all those that aren't fixed or special tariffs, can charge you for the daily charge and for the unit cost of electricity and gas.

2:24So here are the new charges. The standing charge for electricity will remain on average direct debit 61p a day. The unit rate will go up one and a half percent to 24.9p per kilowatt hour. For gas, the standing charge will remain at 31.7p per day. The unit rate will go up by 1.6 percent to 6.3p per kilowatt hour. Though I need to strongly say that it does vary by region and payment method. Those are the UK averages. Well, we were just talking to Sandra. 67 lives alone. It's got a heating on now because obviously it's near zero, but she's going to switch it off and not put it on until the end of the day.

3:00And it doesn't qualify for winter fuel payments. She's kind of over the limit for that. So there's so many people listening to you. Over the very low limit for that. Yeah, exactly. Very low limit. So there's so many people listening to you say, well, what can we do? And let's talk first of all about the cap. You're not a fan of it, are you? Why? Well, listen, I was first of all, the most recent change that we had, big change to the cap was it used to be every six months it's now every three months so now we get this winter change right so we have this sort of mid-winter annual period where I have to come on the radio and the television elsewhere and tell people their energy bills are going to go up it's not particularly good psychology we could have kept it on six months I also think the problem that we have now with the cap and let's just let's be straight this affects 80 percent of homes in England Scotland and Wales there's no cap in Northern Ireland it's on a different system who are on standard tariffs.

3:52Now, people aren't sure they're on standard tariffs. Genuinely, if you're not sure you're on a standard tariff, you're almost certainly on a standard tariff because it means you don't know what tariff you're on. And if you don't know what tariff you're on, you're almost certainly on a standard tariff, which means your tariff is price capped. It's only those who are on a fix or have deliberately chosen an active special tariff who aren't. Now, the problem I have with it is it was brought in to be a backstop for the people who never switched to guarantee them they would not pay too much. That was before the energy crisis.

4:25What it has become now is effectively regulated prices across the country for the majority of people, where Ofgem sets the price and energy firms put their tariffs at that price. It's called a cap, but very, very few companies charge anything other than the maximum cap. So it's really an offset fixed price. You ask me what people can do about it. Well, this is the important bit. As I've just said, the price cap is going up 1.2 % on the 1st of January, and it is predicted to stay higher than it is right now, right across 2025. But if you look, what are the cheapest fixes available right now where you can lock in at a rate?

5:07They are 5 % less than you are currently paying. so almost everyone apart from those on non-smart prepayment tariffs almost everybody can lock in five percent cheaper than the current rate and get the peace of mind guarantee that you will not pay more over the next year and that is the no-brainer thing to do right now the savings aren't huge but at least you know it won't go up you know what it's going to pay and you will pay less than right now. So I'd strongly suggest people go on to a whole of market by default comparison site, of which there is only one mainstream one, which unsurprisingly is moneysavingexpert.com.

5:47What whole of market by default means is not hiding the tariffs that don't pay you when you first go on to the comparison site and find your cheapest deal, because who your cheapest fixes depends on where you live and what you use. But we do have a real problem that the The price cap post-energy crisis has become such a default that there's only flaccid competition out there. You can save 5 % by fixing. You used to be able to save 20 % by fixing. And we really need the regulator to get hold of the lack of competition that's in the market. What should they do then? Because I didn't know that. And that is so interesting, isn't it?

6:23It's a bit like a speed limit, isn't it? You don't have to drive to it, but most people do. And if you're in the business of making money out of energy, that is precisely what you will do. So what should they do? Because it's interesting, isn't it? Because very often, you know, you need to get that information out of them. And it's brilliant that you do that. But you wonder whether people are, you know, do they actually see that enough? Do they hear it enough? Do they, should it be on their energy company to say, look, this is what we're charging you. But of course, also, you could get this cheaper.

6:52You know, should that be put out there? Well, energy companies do do it. And they advertise, of course, their own fixes. They don't advertise the cheapest on the market. But this has also got very difficult because one of the things that we now have is when you look at a price over the next year, what price should you be quoted as the benchmark that you are comparing to? So right now, if I gave you a price, would you want me to do it based on the current October to the 1st of January price, the new 1st of January to April price, the predicted price over the next year? So as you can see, this is what, and so we had a period when the energy price cap was dropping, what energy firms would do is they would compare it to, they would compare the fix they were offering to the existing price, even when you were one week away from the price cap dropping by 10%.

7:46So it would look like you would save by fixing, but actually you wouldn't save by fixing, you'd be better on the price cap. And there's such mass confusion there now. Yeah, that's not good, is it? Of course, my entire job is trying to come to explain through that, which is why instead of talking about typical rates, which is meaningless because nobody pays the typical rate, I talk in percentages. So I talk about going up, going down, but over the next year to try and paint this picture for people that if the predictions are right, and of course they are predictions and predictions will change.

8:13But if the predictions are right, you will pay more. Therefore, you need to know instead of me sitting here, which I could do and say on average over the next year, you'll pay one point seven percent more if the predictions are right. It's just meaningless. I'll just say you'll pay more, but you could pay less. and guarantee that you'll pay less. And simplify it in that way. And I need to say the biggest issue, and if you forgive me, I'm going to pivot slightly. The biggest question I get is about standing charges. This energy poll tax, this£300 a year that you pay just for having the facility of having gas and electricity, it's a moral hazard.

8:49It means those people on the lowest bills can't save money by cutting back. And many older people who have gas central heating but only turn it on in the winter, still have to pay a daily charge in the summer, even though they're not using it. Now, I have a long campaigned that we need to reduce the standing charge. We need to be honest. What Ofgem would do in that case is it would lower the daily charge and it would increase the unit rate that you pay for each unit of gas and electricity. Many people were expecting to see the result, But the announcement on the back of the consultation on standing charges in this announcement today for the January price cap, it isn't there.

9:30My view, and I shall be careful what I say, my view is we will hear about that in the next two or three weeks. But I need to open out with a level of pessimism. I have always said the only way that you can reduce the standing charge because it's going to increase the unit rate is if Ofgem works in concert with government and government increases special measures for vulnerable high users, such as those people who have dialysis machines or electric wheelchairs that need charging. So they use a lot of electricity because otherwise you can't put the unit rate up without protecting those people. We need the standing charge down for everyone because it's unfair.

10:10But there's this small cohort of people with disabilities and illnesses that we need to protect who are vulnerable. Government has not done that. That protection isn't in place. Therefore, I am not expecting to see off-gem reduce the standing charge as it was looking at in the consultation. My hope now is they'll follow my proposal, which is to have a dual price cap in future. So you have one price cap that's low standing charge and high unit rate and one price cap that's high standing charge and low unit rate. And you, by default, move vulnerable people to the right one. But if people are expecting us, I mean, my social media is swamped with questions about the standing charge day.

10:47If people are expecting the standing charge to come down, I am now much more pessimistic that that will happen in the absolute than I was before. That's it for this special mini edition of the Martin Lewis podcast. I do hope you found it useful. We'll be back with the normal podcast next week. So if you've got any questions on energy bills, get in touch via the Martin Lewis podcast at bbc.co.uk. Plus, next week, don't tell anyone, just between us, we've got a special podcast out all about how to fight back on the scams epidemic. If you're not subscribed to get this podcast each week, why not? Go press the subscribe button on BBC Sounds now.

11:23Bye bye. Martin Lewis is the founder of MoneySavingExpert.com. But of course, other consumer and price comparison websites are available. You can get in touch with Martin's podcast team by emailing martinlewispodcast at bbc.co.uk. The offers and rates mentioned in the podcast are correct at the time of recording. However, if you're listening on demand, it's worth double checking as the details can date. BBC Sounds. Music, radio, podcasts.