Energy regulator Ofgem revealed last week that it will reduce the UK's energy price cap to record lows from October. It cited the drop in wholesale energy prices during the coronavirus pandemic as the main cause.
Following a number of predicted reductions, Ofgem confirmed it will lower the price cap on dual-fuel tariffs for 11m homes by £84, down to an average of £1,042. It will also lower the cap for the 4m households using pre-payment meters. These customers will see savings of up to £94 a year, with the pre-payment cap falling to £1,070.
However, as we explained earlier in the week, if you're one of the 11m households that will see your bills reduced by the new price cap, it means you're probably on a standard or default variable tariff - and you're still vastly overpaying on your energy bills.
The best energy suppliers are currently offering tariffs that can undercut the new price cap by over £200. To find out if you're paying more than you should, you need to run a quick energy comparison: this will show you the best energy deals in your area, as well as how much you would save by switching to each.
- Lower your energy bills: find the cheapest tariffs in your area
Rising prices in future
Since its introduction in January 2019, the price cap is reviewed and adjusted every six months to help ensure energy bills are fairer and reflective of wider industry costs, circumstances and supplier profits. The latest cap follows a drop in the UK’s overall energy demand caused by lockdown, and the record lows we also saw for market prices.
On the face of it, it does appear to be positive news for UK households, and the potential savings will be important for hard-hit customers during these unprecedented times.
Ed Dodman, a director at the Energy Ombudsman, agrees. "This reduction in the price cap represents a much-needed financial boost for millions of households, at a time when many people are struggling due to the economic impact of Covid-19 and lockdown," he said.
However, Ofgem has warned that the cap is likely to rise again in April next year, when it anticipates that lockdown measures will have eased, the markets will be much stronger and wholesale prices will have increased.
Switch supplier to save more on your energy bills
The wider point, of course, is that you don't need to be paying anywhere near the price cap - and if you are, you should switch tariff or supplier. Bear in mind that switching while wholesale market prices still haven't quite risen to where they than they were pre-Covid means you can lock in the lower prices, and make even more savings on your energy bills in the long run.
Even if you’re not on the affected standard or default tariffs, it’s worthwhile having a look at what’s out there, as you could end up making significant savings on your bills.
Jonathan Brearley, chief executive of Ofgem, also recommends shopping around for a cheaper supplier. He told BBC Breakfast that customers should be phoning suppliers and asking them to “put you on the best deal they can offer”, or to “go further and get into the market and switch supplier, that will get you an even better deal than the regulated tariff".
FIND THE BEST ENERGY DEAL FOR YOUR HOME
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