Martin Lewis has issued urgent advice regarding the energy price cap amid what he referred to as a "crisis".
With the cost of living crisis continuing to worsen, households across Scotland and the UK are looking to cut costs wherever possible. However, the energy price cap is set to soar in October, meaning households can expect to pay hundreds of pounds more a year in bills.
The energy price cap refers to the limit of what energy companies can charge consumers their default standard variable tariffs. It is currently updated every six months, but this will soon change to every three months — and so bills are expected to rise even further in January to as high as £3,500 a year.
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In response, many households have been questioning whether to stick on the price cap, or whether to lock into a fixed energy tariff. The financial expert took to the MoneySavingExpert website to offer advice.
Lewis wrote: "The UK energy market is broken. The theory is we're meant to gain from competition, but there hasn't been any – instead we have effectively regulatory-enforced high prices.
"Yet there are opportunities to take action to help, not because there are great deals out there, but because the latest analysis is the future looks even WORSE, with the prediction for the next price cap continuing to rise, so it's now far higher than even a couple of months ago. This means some sickeningly costly fixes look like they may now be winners."
The majority of homes across the UK are currently on the price cap, with the remainder mostly on a fix. According to Lewis, "you're on it if you've never switched tariff, if your cheap fix ended and you did nothing, or if your firm went bust last year and you were moved elsewhere".
The money guru has advised that there are "no tariffs meaningfully cheaper than the current cap". However, there are fixes cheaper than the forecast October cap.
While Lewis admitted that it "isn't an exact science", he said his general advice would be: "If you're offered a year's fix at no more than 70% above your current price-capped tariff, or 75% more if you very strongly value budgeting certainty, it's worth considering."
The MoneySavingExpert co-founder also stressed that in many cases the offers that are worth looking into are only for existing customers and that ones that anybody can switch to are "few and far between". Additionally, he said that those considering locking into a fixed tariff should be "very careful" as there can be high early-exit fees.
Lewis continued: If you want price certainty, the cheapest fixes now give you that, but you'll pay more in the short term. If in doubt though, there's nowt wrong with playing safe and sticking on the price cap.
"And it should be noted if wholesale rates drop, cheaper fixes could be available in future, so by locking in now you miss out, especially if your fix has higher exit penalties."
Other risks Lewis warned about include the new UK administration taking office on September 5, which may take measures which would skew the market. Another is the fact that a company you fix with may go bust, meaning you lose the fix and end up being back on the price cap anyway.
Can I fix if I am a Bulb customer?
As stated by Lewis, Bulb is in "special administration" due to the fact that, when it went bust, it was too big to be integrated into another firm.
Lewis explained: "'Special administration' is like a normal administration in that the administrator's job is to protect those people Bulb owed cash to, but crucially the 'special' bit means they must also focus on consumer interests. So Bulb runs like an ongoing concern even though it isn't one.
"But it is very unlikely it will offer any existing-customer tariffs – it'll just stick on the price cap, so you have fewer options."
However, he stressed that customers with the firm are "free to leave and switch elsewhere".
'I'm on a fix now, and it's ending soon, what do I do?'
Those who are currently on a fix should stay on it as long as possible according to Lewis, as it is likely significantly less expensive than the alternatives.
He added: "When it does end, by default you'll be moved to a price-capped tariff, so the logic of whether to fix or not then is the same as above. The only difference is timing.
"The further away your fix is from ending, the less time you'd have on the current cheaper price cap rate. So that means it would be worth fixing at a slightly higher percentage than the one above."
More information is available here.
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