Customers on out-of-contract energy tariffs could see their bills increase by £96 a year from 1 April after an increase to the price cap on these tariffs was announced.
Pay-as-you-go customers that are also on out-of-contract tariffs could see an extra £87 per year added to their bills, as energy regulator Ofgem said this cap would increase by this amount.
Rising wholesale prices are the main causes for the energy cap’s increase, as well as customer debt caused by the pandemic.
These amounts are based on a household using a medium amount of gas and electricity. If you use more – if you’re working from home or home-schooling, for example – the precise extra amount you can be charged will be different.
It’s too early to say whether energy firms will increase their out-of-contract tariff prices to the maximum permitted. But if you’re worried, you can do something about it. Switching away from an out-of-contract or default tariff will mean you won’t be impacted.
Start by comparing gas and electric prices using Which? Switch. Look for cheaper deals with your existing supplier as well as other firms
How much is the energy price cap?
From 1 April, it will be the equivalent of £1,138 per year for a household that uses a medium amount of gas and electricity. It will be £18 more per year for the same household if they prepay for gas and electricity.
It’s not an upper limit on your bill. These amounts are based on using 12,000kWh gas and 2,900kwh electricity in a year. Exactly how much you will pay depends on how much energy you use at home.
The new cap on out-of-contract tariffs for customers with standard meters paying by direct debit will be £12 higher than last spring and £5 less than autumn 2019.
The cap on prepayment meter tariffs is also slightly higher than last spring, but less than the spring before.
Why is the energy price cap increasing?
In a nutshell, it’s due to a rise in wholesale prices, customer debt caused by COVID-19, plus a small amount allowed for the companies’ own policy costs.
Wholesale prices have increased since the last time the price cap changed in October 2020. Back then, the price cap was lowered because demand from industry dropped as a result of the lockdowns and so energy prices fell. Since then, demand has increased and prices have risen again.
Ofgem takes into account wholesale price changes and reflects them when it changes the level of the cap.
Some £23 of the increase is also owing to COVID-19 debt-related costs of those on out-of-contract tariffs. Ofgem says that ‘COVID-19 has put pressure on consumers’ income and their ability to pay a variety of bills. This has and is expected to continue to increase […] non-payments’.
The increase allows suppliers to cover the costs of unpaid debts that they have to write off.
The total cost isn’t known yet, so Ofgem has made a ‘conservative’ estimate. It says it will adjust this with more data in future.
Suppliers will be allowed to recoup these costs gradually over the next 18 months.
The adjustment for COVID-19-related costs does not apply to the prepayment meter cap.
The amounts allowed for policy, network and operating costs in the cap will also increase a small amount.
Will my energy bill go up?
The price cap only applies to out-of-contract tariffs, also called standard or default tariffs. This change applies from 1 April, so the price of these tariffs can’t increase until then.
If you have a fixed tariff, its prices can’t change during your contract, so the change in the price cap will not impact your bills.
You will likely be on an out-of-contract tariff if:
- You haven’t switched supplier or tariff in a while
- Your fixed tariff ended and you didn’t choose a new one
- You didn’t choose your current tariff – for example, if you moved home and joined the previous occupant’s energy supplier.
Energy firms often include ‘standard’ or ‘temporary’ in the name of their out-of-contract tariffs. You can check your tariff on your latest bill or statement, in your online account or via your energy company’s app.
Your energy supplier doesn’t have to increase its prices to the maximum permitted by the price cap. If it plans to raise its prices, you should get 30 days’ notice.
But the large long-standing suppliers have kept the prices of their out-of-contract standard variable tariffs in line with the price cap since it was introduced, according to Ofgem, so it’s likely that they will increase their prices to match it again.
Other suppliers haven’t necessarily done this. The average cost of standard variable tariffs for direct debit customers from other suppliers was around £45 less per year in December 2020.
How to stop your energy bill increasing and get cheap gas and electricity
Out-of-contract tariffs are rarely your energy company’s cheapest deal. If you’d rather not – or can’t – change energy firm, ask it to put you on its cheapest deal for you. Some suppliers let you check this in your online account or print it on your bill.
Alternatively, compare energy prices to see if you could save money by switching to a different supplier. The difference between the cheapest deal on sale now and the level of the price cap from 1 April is £262 per year, based on a home using a medium amount of gas and electricity.*
Use your exact usage (in kWh) to ensure you get accurate quotes. Otherwise your quotes will be based on an estimated usage, which makes it harder to tell how much money you’ll likely save.
It takes between 16 and 18 days to switch energy supplier (on top of the 14-day cooling-off period), so there’s time to change before the price cap allows suppliers to raise the prices of their out-of-contract tariffs.
When you compare prices, check whether the tariffs are fixed or variable. The price of variable tariffs changes when the supplier changes its rates. Fixed tariffs give you the security that the rates you sign up to won’t change until the end of your contract.
See more tips for getting the best energy deal.
Help if you’re struggling to pay your energy bills
Increased time at home as a result of the pandemic means many of us have used more electricity and gas than in previous years, and so have higher bills, which comes at a time when you might find it harder to pay them.
If you’re worried about paying your bill, there are several things you can do – including change your energy tariff, switch energy supplier and contact your energy firm for support.
There are new rules that mean a supplier must:
- Put customers who are in debt on realistic and sustainably repayment plans based on their ability to pay
- Offer emergency credit to customers struggling to top up their prepayment meters.
At the moment, your energy supplier won’t disconnect your gas or electricity if you miss a payment.
Contact your energy supplier to discuss ways to pay what you owe. It should help you come up with a payment plan, taking into account how much you can afford to pay and how much energy you’ll use in future.
For example, you might pay fixed amounts over time to cover what you owe, plus an amount for your current use.
It’s also possible to repay debt directly through your benefits, using the Fuel Direct scheme.
Grants are available from some of the biggest suppliers to help you pay off energy debts.
What is the energy price cap?
It’s a limit on the amount that energy firms can charge for their out of-contract or default tariffs. The limits are slightly different depending on how you pay for your energy (for example, by direct debit or pay-as-you-go).
The price cap doesn’t limit your total bill. The limits are on the charges that make up your bill: the standing charge and unit rate.
- Standing charge A daily amount payable regardless of whether or not you use any gas or electricity
- Unit rate The price of a kilowatt hour of gas or electricity.
Your bills will depend on how much gas and electricity you use. We have quoted figures based on a household that uses a medium amount of gas and electricity to give you an idea of the changes.
A medium amount is based on energy regulator Ofgem’s figures of 12,000kWh gas and 2,900kWh electricity per year.
The price cap is updated twice a year in April and October. Its purpose is to ‘ensure default tariff customers pay a fair price for the energy they consume, reflecting its underlying costs’, Ofgem says.
*Correct on 5 February 2020. Data from Energylinx for a household using 12,000kWh gas and 2,900kWh electricity per year, paying by monthly fixed direct debit with paperless bills.