More than half (54%) of British households are on poor-value default energy tariffs, often because they’ve loyally stuck with the same energy supplier for years. Ofgem’s energy price cap puts a limit on the amount that energy suppliers can charge customers on these default and standard variable tariffs.
The energy price cap, pegged at £1,156 since 1 April 2020, will save 11 million households on their gas and electric bills. But not everyone will benefit, and even customers who are protected shouldn’t be complacent that it will fetch them the best deal. Futhermore, the cap is due to rise by a record amount from October 1st this year.
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It was instituted by an act of Parliament – the Domestic Gas and Electricity (Tariff Cap) Act – and is administered by Ofgem, the energy market regulator. The cap will be in place until 2023, although the level will be adjusted biannually, in April and October, to reflect changing wholesale energy costs.
The energy price cap is designed to alleviate the loyalty penalty, the premium paid by customers who faithfully stick with the same energy supplier for years. Research has indicated that 11 million households are stranded on these pricey default tariffs, which they were often quietly rolled onto after their fixed rate deal expired.
Switching energy supplier or tariffs is the best way to trim your energy bills. Customers hopping from default tariffs to the cheapest fixed rate deals on the market can save, on average, nearly £300 a year.
But many customers are leaving these savings on the table, often because they’re baffled by the energy market or daunted by the switching process. Just 15% of customers switch energy supplier each year. And Ofgem has found that 57% of households have never switched energy supplier or have switched just once. Elderly customers and households on low income are less likely to be actively engaged in the energy market and thus more likely to be paying over the odds for their fuel. The energy cap protects those 11 million under-engaged households.
If you’re on a fixed rate tariff, the energy cap doesn’t apply to you. But you’re most likely already paying a lower rate for your energy than the cap would guarantee you.
If you’re on a pre-payment tariff, this energy cap also won’t apply to you. Your bills will be limited by a specific pre-payment price cap, sometimes called the safeguard tariff, which has been in force since 2017.
If you’re in doubt whether you’re currently protected by a price cap or should be, contact your supplier.
The price cap for default tariffs is currently set at £1,156 for an average household, and this is due to rise by around 12% to £1,309 from October 1st.
The cap for prepayment customers is £1,138 (again, for average households), and will go up to £1,277 in October.