Martin Lewis issued a warning to households who are planning on cancelling their direct debit amid soaring energy bill prices. On Friday (August 26), Ofgem announced that energy bills for 24 million households on a standard tariff will increase by 80 per cent from October.
It will take the average household bill from £1,971 per year to £3,549. The cap remains in place until December 31 when energy analysts predict it could surge again to around £5,400 in January and £7,000 in April.
For many, the possibility of facing steeper Direct Debit payments is making them consider cancelling the payment method and paying their bills directly. But in a new video released on social media and YouTube, Martin Lewis warns people that doing so may seem like a win in the short-term but long-term, there would be a higher price to pay - some £200 extra a year.
Although the price cap doesn't come into effect until October 1, Ofgem warned that some suppliers could start to increase Direct Debits before then to spread costs. In the 13-minute long video, the founder of MoneySavingExpert.com explains the impact of the price cap, daily standard charges, how much certain groups of people will pay and answered the most common questions he has been asked since the announcement.
Price cap per year from October by payment method
Martin explained how the way people pay their energy bills results in a different price cap, reports the Daily Record - but just remember, these only apply to those on the standard tariff, not a fix.
From October 1, annual bills will increase by the following:
- Dual fuel (gas and electricity) Direct Debit: £3,549 (up 80%)
- Prepayment meter customers: £3,608 (up 79%)
- Paying by receipt of bills: £3,764 (up 79%)
Should I cancel my Direct Debit?
Joanne asked Martin: "Is there any mileage in cancelling Direct Debit payments and paying when the bill comes in, so as not to give energy companies money regularly and upfront?” Martin explained how people who do not pay by Direct Debit will pay £200 more if they choose to pay when they are billed by their supplier.
He said: “You pay more per unit rate of gas and electricity if you pay in receipt of bills, however, the Direct Debit is based on the energy firm’s estimate of what you’ll use. If it’s estimating too high, or you don’t like it, you will get a short-term cash flow gain from switching to paying in receipt of bills - where they send you a bill and you pay for it each time.”
Martin continued: “So, you might pay less money in the short-run from it, however, over the longer-run because you’re paying more for each unit of energy you use, you will pay more in receipt of bills. If you overpay on Direct Debit you are entitled to that money back in the long-run.”
Should I fix my tariff?
Martin also explained there are not fixed tariff deals on the open market just now and the only way to find out if one is available is to contact your supplier directly. He advised that if your supplier offers you a fix that is less than two-and-a-half times the new price cap, some 150% higher than what you’re currently paying, then it may reduce costs ahead of next year’s grim forecasts.
However, he warned that he cannot guarantee that, but suggested people read the full guide to tariff fixes on MoneySavingExpert.com here. The consumer website also has a Price Cap Calculator which allows people to enter their usage or how much they spend, plus their region, and it will provide an estimate of what their energy bills will be from October - this tool is only for Direct Debit tariffs.
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