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Ofgem, the energy regulator, has announced an increase to the energy price cap for households on standard variable and default tariffs.
The price cap will rise by £96 as of 1 April 2021, meaning the average customer on a standard variable tariff will pay a maximum of £1,138 per year for their gas and electricity. The prepayment meter tariff has also been increased to £1,156 - an average price rise of £87.
The new rates will mean higher bills for around half of UK households if they don’t switch. This includes 11 million people on default and standard variable tariffs and a further four million on prepayment energy meters.
The energy price cap was introduced in January 2019 and sets the maximum price energy suppliers can charge per unit for their standard variable or default tariffs. The cap is reviewed twice a year in February and August, with the new rates coming into effect in April and October.
The price cap announcement comes at a time when many are struggling to stay on top of their bills. A recent Uswitch study found that one in ten households could not cope with any increase to their bills. Households estimate their power usage is 8% higher than this time last year due to spending more time at home during lockdown.
Richard Neudegg, head of regulation at Uswitch, said: “The pandemic has already placed many households under great financial strain. News of the price cap rising by £96 from April will be a bitter pill to swallow on top of the many other challenges that are facing consumers.”
“The price cap increase is, in part, an aftershock of last year’s lockdown which left many customers struggling to pay their energy bills, plunging them into debt that suppliers have been unable to recover.”
“But as the country remains in lockdown, usage remains high and energy costs hike, there is a very real danger that the price cap will end up trapping households on default tariffs into a vicious circle of energy debt.”
The price cap only affects standard variable tariffs and prepayment meter tariffs, which are typically the most expensive types of energy plan.
Standard variable tariffs (SVTs) are suppliers’ generic energy plans, and their rates can fluctuate in line with the price cap. If you haven't switched energy before, or you've rolled off a fixed energy deal, you're likely to be on one of these tariffs.
The latest change means people on these tariffs will see higher bills from April, but many could make easy savings by switching to a better-value fixed deal. Right now, the cheapest deal available to switch to through Uswitch is £189 cheaper than the new price cap level*.
Richard Neudegg said: “Households on variable tariffs face continued uncertainty over bills, with energy prices rising and falling as the price cap pendulum swings to and fro, with changes every six months.”
“The good news is that there are plenty of fixed deals available that would protect households from this market volatility and provide not just certainty and reassurance, but significant cost savings.”
Take a look at the cheapest fixed deals available through Uswitch in the table below:
|Green Future Oct 23v3||£3753||Compare now|
Based on average bill sizes for a medium energy user on a dual fuel plan paying by monthly direct debit, and averaged across all regions. This information is updated hourly with energy plans which are available to switch to through Uswitch. To appear in this table, plans must be available in at least 7 of the 14 regions.
*Cheapest deal available through Uswitch at 10:00 on 05/02/21: E.ON Fix Online Exclusive v59. Average cost £949.35 based on the average bill size for a dual fuel customer consuming medium energy usage as defined by Ofgem (2,900 kWh of electricity and 12,000 kWh of gas per year), paying by direct debit, with paperless billing. Prices averaged across all regions.