New Prime Minister Liz Truss said the UK would ‘ride out the storm’ as she prepares to deliver a multibillion-pound package to help households across the UK cope with soaring energy costs. It is being widely-rumoured that this will include a freeze on the energy cap, which is due to rise from £1,971 to £3,549 in October.
Martin Lewis, who has been at the forefront of challenging energy firms and politicians over soaring costs and households’ inability to continue to keep up with the rising cost of living, has now shared his views on the energy price cap freeze rumours. Taking to social media, the founder of MoneySavingExpert.com posted on Twitter: “Is the Liz Truss administration going to freeze prices at the current level? If so what does it mean for those on the price cap and on fixes, and is it any good?”
In his ‘rough provisional analysis’ of what support may be coming to help millions of households, the consumer champion explains how energy firms have already met the new Liz Truss administration.
Martin wrote: “It's strongly rumoured that top of the agenda was freezing the price cap at its current level (£1,971/yr for someone on typical use) and adding small business to the cap too. This is similar to suggestions made by the main opposition parties - though likely to be funded in a different way.
“Since then we've heard mutterings that the cap will be frozen at £2,500/yr for someone on typical use - but the £400 reduction in bills will still come - so overall that's £2,100.”
He went on to explain how most people aren’t on typical use, but by using that info as a basis, it would mean “a rise in outlay of an average 6.5% compared to what you pay now” - as opposed to the planned 80% rise in the October price cap.
Energy price cap freeze
Martin said: “Freezing (or near freezing) the price cap now would help substantially.
“Freezing the price cap at its current level certainly fulfils that brief, so I absolutely would welcome it. It would go a decent way to mitigate further short-term damage, and the risk to health and mental health, causing a sigh of relief for many.”
However, the financial journalist pointed out that this option could turn out to be more expensive for the public finances and is “certainly far from targeted”.
He also highlighted how the big problem is that everyone would get it - including wealthy households.
He explained: “Those who gain the most from it in cash terms will be those with the highest bills (many, though not all, will be at higher income levels), so clearly it isn't targeted at helping those who need it most.”
What happens to people who have fixed tariffs?
Since the April price cap, Martin and the MoneySavingExpert.com team have been number crunching constantly to identify and share the ‘magic number’ which could help households beat the price cap. This is often much higher than the current cap, but looking ahead would in fact be cheaper than future increases to energy bills.
However, if a proposed £2,500 energy price cap is announced, how will that affect people who have fixed on a higher tariff?
Martin asked: “If they are not automatically moved, will they be allowed to switch to the price freeze? If so and their tariff has early exit penalties (some of which can be £300+), will they still be charged? (Hopefully not, especially as it’d likely be an internal tariff change and exit penalties are often wiped for those).”
Hopefully, if a freeze on the energy cap is announced, this must surely be at the top of the new PM’s agenda.
Martin said: “This will need sorting out as a priority so those who've tried to protect themselves don't miss out. I would of course be lobbying for that and hope there's a chance some policymakers may just be reading this now to ensure it is addressed.”
He also pointed out that if you fixed within the last 14 days, you should check with your supplier when the ‘cooling off period’ ends - but advised, waiting to hear what the announcement is first.
Remember, this is all speculation at the moment.
Martin has also posted his thoughts on MoneySavingExpert.com where he looks at the option of energy firms taking a loan for 18 months to cover the costs of the increased price cap. This would be repaid over 10 years and given the continued uncertainty over wholesale gas prices, Martin says it’s a bit of a ‘gamble’.
You can read the full Martin Lewis blog here.
If you’re worried about Direct Debits increasing, the MoneySavingExpert team have created an exclusive guide on how each firm sets theirs - find out more here.
To keep up to date with the cost of living crisis, join in the conversation on our Money Saving Scotland Facebook page here, or subscribe to our newsletter which goes out three times each week - sign up here.
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