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Energy bills to rise for millions of households

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Written by: Emma Lunn
05/02/2021
The energy regulator Ofgem has lifted the price cap on standard energy tariffs back to pre-pandemic levels.

From 1 April, the energy price cap will rise by £96 from £1,042 to £1,138, primarily driven by a global recovery in wholesale energy prices in recent months. For customers paying by prepayment meter, the level will rise by £87 from £1,070 to £1,156.

What is the energy price cap?

The energy price cap is the maximum amount a customer with typical energy usage on a standard or default energy tariff can be charged each year. But the energy price cap doesn’t set a limit for your total bill – what is capped is how much can be charged for a unit (kWh) of energy.

If you’re on your energy supplier’s standard variable tariff or prepayment tariff, the higher energy price cap will almost certainly mean you pay more for your energy. This is because most energy suppliers set the price of their standard variable tariffs and prepayment tariffs very close to the cap rate.

About 15 million households, including 4 million prepayment meter customers are on a default tariff and covered by the cap.

Ofgem says the price cap has reduced supplier revenues by about £1bn a year since its introduction in 2019, saving consumers an estimated £75 to £100 per year on their energy bills to date.

Switch to save money

But experts say households shouldn’t rely on the energy price cap to keep their bills down – they should switch suppliers instead.

According to MoneySupermarket, the cheapest tariffs on the market currently sit at just under £950, so a saving of £193 on the price cap for the average user. But with many people using more energy at home at the moment, those savings are likely to be well over £200.

Stephen Murray, energy expert at MoneySupermarket, said: “Ofgem’s announcement that the price cap will be increasing, will put an average of £96 pounds on the bills of around 11 million households. So, those customers who are sitting on an expensive standard variable rate tariff will certainly see a hike in their bills from April.

“Consumers that rely on the price cap to protect them from price hikes or give them a ‘good deal’ on their energy bills do so in error. The cap was introduced to ensure households that didn’t switch paid a ‘fair price’ for their energy, but unfortunately that fair price has consistently been a long way from a ‘great price’. Our research estimates that consumers that have relied on the cap to keep their bills down will have paid £6,132 more than those who have switched once a year since the cap’s introduction in January 2019.

“Our message to billpayers is clear: if you’ve been with your supplier for a while, it’s likely you’re overpaying so shop around for a better deal.”

What are the cheapest energy tariffs?

According to MoneySupermarket, the cheapest energy tariffs available at the moment are:

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