Households are being warned that a widely misunderstood detail of Ofgem’s energy price cap could leave them facing much higher bills than expected this winter.
The regulator has confirmed that its cap will rise by 4% from October, taking the typical annual dual-fuel figure from £1,663 to £1,723.
However, the figure is not a maximum bill. What each household actually pays depends on how much energy it uses, where it lives, its tariff and how it pays. Molly Monks F.I.P.A., insolvency specialist at Parker Walsh, explains:
Calling it a price cap can create the impression that nobody will pay more than £1,723, but there is no ceiling on the total bill.
The cap limits the rates suppliers can charge customers on default tariffs. A household that uses more energy will still pay more, which is why understanding the detail matters before winter arrives.
Here are five common myths that could prove costly.
Nobody will pay more than £1,723
The £1,723 figure illustrates what a typical household paying by direct debit might spend over a year if the October rates remained unchanged.
It is not a fixed bill, entitlement or upper limit.
A larger family in an inefficient home could pay considerably more. Treat the headline figure as a comparison tool, not a personal forecast.
Your own annual statement or recent usage in kilowatt hours will give you a much more useful estimate.
Everyone’s bill is increasing by exactly four per cent
Ofgem says most of the increase is being driven by gas, with gas bills rising by around eight per cent. Homes that do not use gas should experience a much smaller increase of less than one per cent.
Electricity prices are remaining broadly stable because VAT is being temporarily removed from domestic electricity bills.
A gas-heated home may feel the change more sharply than an electricity-only property. Your personal increase will depend on what energy you use and how much – not simply the four per cent headline.
Who is actually protected?
The new cap applies to every household
The price cap primarily protects customers on default or standard variable tariffs. Around 11 million households on fixed deals will not have their contractual rates changed because the cap has moved.
However, Ofgem says the electricity VAT reduction will also be applied automatically to eligible fixed-tariff customers.
Check the name of your tariff and its end date before assuming the announcement affects you. If you are fixed, also check what happens when that deal expires, as you may otherwise roll onto a more expensive default tariff.
A supplier cannot raise your direct debit above £144 a month
Dividing £1,723 by 12 produces a monthly figure of about £144, but that does not mean suppliers must set every direct debit at that amount.
Payments can be adjusted according to predicted consumption, previous usage, account credit or debt and seasonal patterns.
Ask the supplier to explain its calculation if your payment rises unexpectedly. Provide an up-to-date meter reading and check the usage estimate, but do not simply cancel your direct debit without speaking to them.
Moving to another payment method could cost more, while unpaid bills can quickly become a serious financial problem.
What to do before October
There is nothing you can do until prices change
Ofgem says fixed tariffs are currently available at £100 or more below the October cap, although that does not mean every fixed deal will be suitable.
Consumers should compare the unit rates, standing charges, contract length and exit fees rather than relying on an advertised annual saving.
Use your actual consumption when comparing tariffs and photograph or submit a meter reading around September 30. That creates a clear record of what was used before the new rates began.
If you are already struggling, contact your supplier before arrears build up. Suppliers are required to work with customers experiencing payment difficulties and may be able to agree an affordable repayment plan.
The most expensive mistake is assuming the cap guarantees an affordable bill. Knowing your tariff, monitoring your usage and acting before winter gives you far more control than relying on the headline number.
