URGENT Energy price cap update: everything you need to know to beat the increase!

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0:55I got meals, I got paid So I'm going to work for the world and never let go I got a mouth, I got a fee So I'm going to make sure everybody eats

1:10Martin Lewis:Hello and welcome to this special mini breaking news edition of the Martin Lewis podcast on the back of the announcement from the energy regulator Ofgem that the energy price cap will rise yet again on the 1st of October. In a moment, I'll play you the interview I did reacting to the news on Five Live, where I go through the big picture of what to look at. But before we get to that, I want to give you podcast listeners a little bit more granular detail of what's really happening. So the headline figure is the price cap on the 1st of October that dictates the price that those people in England, Scotland and Wales on standard tariffs pay is to rise by 3.6%.

1:51Martin Lewis:The main reason for that rise is wholesale rates. The October price cap is based on average wholesale rates for the period from the middle of March to the middle of August, and they have been high due to the Middle East conflict. But there's another factor in here that is on the 1st of October, the same date the new price cap starts. The government has also scrapped VAT on domestic electricity, only electricity, not gas, and that will only last six months. So those two things have to come together. Now, those people who aren't on price caps, such as those who are on fixes, you're going to see that electricity VAT cut on the 1st of October.

2:31Martin Lewis:Your bill's probably going to be on average around 2.5, 2.6 % less than it is right now, because remember, it's only electricity and you might have some gas going in your energy bills. But I want to talk to you about the cumulative effect of all of that on the price cap. The headline figure is 3.6%. Here's what's really happening. The average domestic UK price cap rate for those on direct debit, and it does depend what region you're in, and it does depend how you pay. But let me just give you this idea. The new electricity unit rate is 26.3 pence per kilowatt hour. So that's up just under 1%. The new electricity standing charge on average is 54.8 pence per day.

3:12Martin Lewis:That's down 4.1%. Now, the reason those aren't going up that much is because of that VAT cut and the standing charge is coming down. So if you are an electricity only user, then you're likely to either see a small rise or if you're a very low user, you could actually see a slight fall coming in October. The gas unit rate, though, is where the really big hike is coming on board. The new gas unit rate on average is 7.97 pence per kilowatt hour. That's up nearly 9%. And the gas standing charge is 29.68 pence per day. That's up 2.2%. So if you use a lot of gas, you are likely to see a big rise and probably bigger than the headline 3.6 % average rise that's coming out.

4:03Martin Lewis:Now, having given you that little bit of nitty gritty nerdy stuff for the podcast, I think it's probably time we go into the Five Live interview that I did with Rachel Burden not long after the new price cap was announced. Right, it is Five Live breakfast. And the other big news domestically today is that the energy regulator Ofgem has announced that its price cap is going up in October. We were expecting this reaching a three year high. The limit which applies to households in England, Scotland and Wales, which are not on fixed tariffs will see typical bills increase by£60 a year. So let's talk now to Martin Lewis, founder of Money Saving Expert and, of course, host of Five Lives, Martin Lewis podcast.

4:38How are you this morning, Martin? We were expecting this figure, weren't we? But it doesn't mean to say it won't still hit some people hard.

4:45Martin Lewis:No, I think the really big thing to remember is we were on in July. We got the announcement of a 12.6 % rise in the price cap. At the time, the mitigation was that was over the low use summer period. Well, this 3.6 % rise that we're seeing today is on top of the 12.6%, which means prices are nearly 17 % higher once we get to the 1st of October for those on the price cap than they were back in April. And now we're going into the winter period. And if you want to be really depressing, because wholesale rates, those that gas and electricity companies pay, are so high right now. In fact, this week, they're higher than they've been at any point since the middle of the Ukraine crisis.

5:25Martin Lewis:the current prediction is we're looking at around a 10 % rise again in January which is why people do need to act so Rachel you know I always I always become a nerd and pick you up on these things forgive me the BBC nerd away go on that 60 pound a year figure the BBC is quoting is just ups absolutely nonsense okay this is a three-month price cap you can't have an annual rise on the three-month price cap price cap only lasts till December it is a I mean if you want to be technical on an annualised rate it would go up£60 but as it's only a three month period that's equivalent to a£15 pro rata but it's actually 30 % of annual usage so it's more like£20 over the period but none of that matters what matters is it was meant to be coming down now we were meant to get the short spike in July on the back of the Middle East that was hopefully going to be over by now it hasn't this is 3.6 % on top of 12.6 % and that 3.6 % is after the cut the scrapping of electricity VAT that also happens on the 1st of October.

6:28Martin Lewis:Without that, it would be going up 6 % today. So people need to take note. They need to know whether they're affected or not. As you rightly say, it doesn't affect those on fixes, although most people on special tariffs, this is only for those people who are on the standard variable tariff of their firm, The do nothing tariff, the I didn't fix, the I fix or my special tariff ended and I did nothing. This hits you. And if it does hit you, there are ways to avoid it. But you need to act. OK. And how do you act? What's the best thing to do? Well, so let's just go through that pattern that I talked about.

7:04Martin Lewis:The cheapest fixes on the market are currently around 7 % less than the current cap. So if you were to fix today, then you would save 7%. That cap is going up 3.6 % in October. So the cheapest fix today, which of course locks in your unit rates and standing charges, well, that is going to be 10 % less than the October cap. And if, and though it is crystal ball gazing, the price goes up again in January by, let's say, 10%. Fixing today is 20 % cheaper than what you'll pay in January. So the most straightforward thing for people to do is to go onto a whole of market comparison site, one that doesn't hide tariffs that don't pay it, and go and find your cheapest fix.

7:54Martin Lewis:Not your energy firm's cheapest fix, because that probably won't be cheap. The cheapest fix on the market and lock in. The only complexity to that is the rate at which cheap fixes are set moves with wholesale rates. And you heard me say earlier, this week, they're the highest they've been since Ukraine. So these fixes are more expensive than they were two, three, four weeks ago and far more expensive than they were a couple of months ago. So do they behave more like a tracker mortgage then? Is that what you're saying? No, it's more complex than that. It's the rate that you can fix at. So you lock in a rate, but if you had fixed a month ago, you could have locked in at 10 % less than the current price cap.

8:35Martin Lewis:Today, you can only lock in at 7 % less than the current price cap. And then that rate stays for the next year. Do you see what I mean? So it's the rate of new fixes we're talking about, not the rate once you're fixed, you're fixed. So my problem is, if the Middle East conflict were to lessen over the next few weeks, you may be able to fix more cheaply in three or four weeks time than you can today. But of course, I don't know that because that is dictated by the big orange fella over in the White House. And who knows what he's going to do or not going to do. Yeah. And we know that a lot of this is baked in anyway, that the rise is it will take a long time for any reductions to filter through.

9:11But that actually, I'm sorry.

9:13Martin Lewis:On fixes, you'd probably see it come down. I think I could certainly see it going a few percentage cheaper. But the big message from me, I think I'm going to, if I can split people into two categories, If you're a, I haven't done anything for a couple of years because I don't understand this type, just go and get the cheapest fix you can today. That's it. If you're a, I normally fix, my fix is coming to an end, I understand how this works, then you might want to wait a couple of weeks and cross your fingers that things get better if you understand the risks that are involved in doing so that it might also get worse.

9:43Martin, so I do want to speak up for the heating oil people. Stephen Halstead says, yeah, what happened? It's still double the price. We were promised 150 quid. It's not looking good for us. Anything to say on that?

9:56Martin Lewis:So the energy price cap is time lagged. What's happening in October is dictated by average prices between the middle of May to the middle of August. They were bad. What's happening now is worse. That's why things are getting worse. Heating oil is much more time sensitive. So the fact that the wholesale rates have gone up now means that people who have heating oil are paying even more. I've sent a massive dossier to the government on this at the start of the Middle East crisis. The biggest thing I said is we need this to be regulated so there are fairness rules in place. That hasn't happened. I'm afraid at this point, it isn't a question for a money-saving expert.

10:31Martin Lewis:It's a question for a Secretary of State for Energy. What are they going to do? Because there are still no protections in place. The small amount of help that was put in has gone, and so many people found it difficult to be able to access it. And there are massive problems for people on heating oil. But there are no, you know, playing the market solutions, I'm afraid. Thank you very much. Okay, so that's the interview with Five Live. And I went through there, as you can hear, the easy, simple solution that is fixing. Of course, things are always more complicated than that. And as you'd heard, I was talking about, and it's probably worth explaining my logic here.

11:06Martin Lewis:Here's my problem. And here's the reason I gave the caveat about fixing right now. The problem I have that big picture, fixing is better than staying on the price cap. on the huge balance of probabilities. If you lock in a cheap fix right now, you will save compared to being on the price cap over the next year. That's because we know fixing now is cheaper than the current price cap. We know the cheap fixes now are far cheaper than the October price cap. We think it's very likely fixing now will be cheaper than the January price cap because we would need an enormous shift. that we've already one week into the three-month assessment period for that price cap and prices are huge so for it to turn around so that prices were actually dropping by the 10 % they'd need to drop in January before it wasn't worth fixing now I mean is virtually unthinkable we'd need a major shake-up of world economic news it's not impossible but it's virtually unthinkable so we're pretty sure that fixing now will save you until the end of March then we don't know what's happening in March but March is a lower use period and if you fix now you'd save over the high use winter period So the standard logic, you can see why I'm saying for those people who do nothing, they should fix.

12:15Martin Lewis:You can see why that's what I said in the interview. But here's my problem. And I think it's worth just me talking you through that. As you heard me trying to explain that fixed prices are volatile, not once you fix, but the prices of new fixes, they're volatile. They move every day and they're incredibly time sensitive and price sensitive to current wholesale rates. so if I look at the the rate you can fix at now that's the most expensive you've been able to fix that for probably the last two or three years I mean all fixes in the past have been cheaper than current fixes so it's I find it slightly sticks in the craw for me to be suggesting people fix at a relatively high rate but I don't know if that rate will come down because the main thing dictating the rate you can fix at are world wholesale prices which are currently being dictated by what's going on in the Middle East.

13:04Martin Lewis:So, you know, we could be, it could be that today is a peak of fixed prices if things settle down. And in a month's time, you'll save, you'll be able to fix at 10, 11 % cheaper than the current price cap rather than 7%. So I have to throw that caveat in, which is why I've got mixed messaging. My message for, you know, the simple thing is just get your fix now and do it while you can. That the more complex thing is there is a market out there in fixed prices. And that is volatile and it does move. What I don't want is people to say to me, you told me to fix four weeks ago and it's got even cheaper since.

13:35Martin Lewis:And if I'd waited, I could have fixed. Yes, that may happen equally. You know, fixes could get even more expensive than they are right now. And that's the problem that I've got. And that's why even when trying to do a sort of more simple music piece on Radio 5, I felt it was important to give the caveat about what could happen to fixed prices. Now, there are other caveats out there, things that I didn't mention too, you know, if you're a very low user, British Gas has a cap tracker that matches the price cap, so it'll still go up, but not 60 quid off standing charges. And EDF has a similar one available at the same rate, at slightly less rate.

14:09Martin Lewis:So there are other options. There are, of course, those hugely volatile time of use tariffs, Agile and Tracker from Octopus. They're not looking good at the moment, but if things improve, they could look far cheaper than fixing. And if you've got an EV, there are specialist electric vehicle tariffs. I've talked about this in past pods and you'll be able to find good information online about what the best EV tariffs are. I can't tell you where to go. You'll understand why, but I think you'll get a gist of what you could look up. And there are also special charges if you're on solar too, but fixing is the simple option for most people.

14:37Martin Lewis:Anyway, that's me just digressing and going into my own world of trying to explain to you in this intimate little world of the podcast, exactly why I have to caveat in the way I do when I'm doing a news interview and what's going on with fixes i hope this gives you what you need um i may well come back and do a proper energy exactly what's happened happening um full podcast program next week uh when i do it with adrian and we do a proper podcast and get all your questions in haven't fully decided on that yet but i hope you found this uh quick newsy pod interesting and helpful until next time

15:26Martin 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 production 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 are listening on demand, it's worth double checking as details can date. Remember to subscribe on BBC Sounds and leave us a review however you listen.

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