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Energy suppliers hike bills ahead of cap decision

John Fitzsimons
Written By:
John Fitzsimons
Posted:
Updated:
02/02/2021

The average price of the cheapest energy tariffs has increased by £78 since the start of December, new analysis from price comparison site Comparethemarket has found.

In early December, the average cost of the cheapest 20 tariffs on the market stood at £857 for a typical household. However by the end of January this had jumped to £935.

Despite this increase, moving to a fixed tariff will mean cheaper bills than rolling onto your supplier’s Standard Variable Tariff (SVT).

What is the SVT?

When you take out an energy tariff, you will enjoy a certain price for a specific period ‒ perhaps a year or two ‒ before moving onto your energy supplier’s SVT.

This is the most expensive type of tariff, and the one subject to the price rises periodically announced by suppliers.

Energy regulator Ofgem publishes data on the average SVTs charged by different suppliers each month. While most of the big names charge an average of £1,042, there are some ‒ like Bulb, Avro Energy and Octopus Energy ‒ who charge less than £1,000 a year.

What about the energy price cap?

A couple of years ago Ofgem introduced an energy price cap, which limits the maximum amount suppliers can set their SVT at. It currently stands at £1,042 ‒ the figure charged by those big suppliers ‒ but is reviewed twice a year.

Ofgem is due to announce how the cap will change in February. It has already confirmed that there will be an ‘adjustment allowance’ of an additional £23.69 a year per customer in order to compensate suppliers who are having to deal with an increase in defaults as households struggle to pay their bills due to the impact of the pandemic on their finances. Any further increase will take effect from 1st April.

A separate study from Comparethemarket found that almost a third (29%) of families with children at home struggled to pay their bills in the past week, compared with 16% of those without children at home. What’s more around one in four (28%) of families with children say they feel less financially secure than in previous lockdowns.

Peter Earl, head of energy at Comparethemarket, commented: “A price cap increase will be a bitter pill to swallow for millions of households. In particular, it would hit many families who are already struggling financially and will soon face the shock of their energy bills after a winter spent in lockdown. 

“The 11 million households stuck on their supplier’s standard tariff have until the 1st of April to move onto a more competitive deal or risk significantly overpaying for their energy. There is rarely any benefit to being loyal to your energy supplier. One of the best ways to cut down costs is to shop around and regularly switch tariff or supplier.”