The cap has dominated the news in recent months as consumers nervously watch to find out how much higher their bills can go, but many of the driving forces behind the increases are beyond our control. What is the price ceiling? The price cap sets a limit on how much suppliers can charge for each unit of gas and electricity used. It also sets a maximum daily fixed charge (what you pay to connect your home to the grid). The total number is not a limit on your total bill – it only reflects “typical” usage. So if you use more energy, you’ll pay more. If you use less, you’ll pay less. The price cap affects customers in England, Scotland and Wales. In Northern Ireland, suppliers can adjust prices whenever they want, as long as it is approved by the Utilities Regulator. How often is the price cap revised? The price cap was reviewed twice a year, but from October it will be reviewed quarterly, meaning any price rise or fall can be passed on to customers more quickly. Regulator Ofgem says this is to minimize the number of suppliers going bust – dozens have failed in recent years. But in August Christine Farnish quit Ofgem’s board, telling The Times that she did not believe Ofgem “had struck the right balance between the interests of consumers and the interests of suppliers”. Who is affected by the price cap? The price cap applies to default tariffs, also known as standard variable tariffs or SVTs. You’ll be on one of these tariffs if your fixed tariff has expired and you haven’t signed up for a new one, if you’ve never changed your energy tariff, if you’ve been with a supplier who’s collapsed and if you’ve recently moved house (although some suppliers allow you to transfer fixed deals so check). If you are on a fixed tariff, you are not affected by the price cap. There is also a separate price cap for households on prepaid meters and this is revised quarterly. Ofgem estimates that 22 million households are on a variable tariff, but this will increase as more people move off fixed tariffs and realize that finding another isn’t so easy (more on that later). Is the price cap still good? Some are beginning to wonder if the price cap has had its day. Among them is Dr Craig Lowrey, Principal Consultant at Cornwall Insight. Cornwall Insight is an energy consultancy with a strong track record of predicting the price cap. Earlier in August, Dr. Lowrey said: “…Perhaps it is time to consider the cap position altogether.” He added: “Ultimately, if it does not control consumer prices and harms suppliers’ business models, we have to ask whether it is fit for purpose – especially in these unprecedented times in the energy market.” What is included in my energy bill? In the October 2021 price cap announcement, the bills were broken down as follows: 36% wholesale cost. 25.35% network cost. 18.62% operating expenses. 15.33% environmental and social cost. VAT 4.76%; 2.24% other expenses. Profit margin before supplier taxes 0.93%. Environmental and social costs include projects that help offset the energy supply, such as improving home insulation. The social cost includes schemes to help vulnerable customers, such as the Warm Homes Discount which gives more than 1.5 million people a discount of around £140 on certain benefits. But it’s the increase in wholesale gas prices that’s driving energy bills up right now. Why are wholesale gas prices rising? Yes, you’ve heard it many times – it’s the war in Ukraine. But there are other factors, such as the cold winter in Europe last year that depleted stocks and increased demand from Asia, especially China. The UK gets almost no gas from Russia, so why are our prices affected? That’s right – Russia accounted for just 6% of UK gas imports and 8% of oil imports in 2019, according to the Office for Budget Responsibility. And on Wednesday, the Office for National Statistics said Britain imported no fuel from Russia in June for the first time in history. But Russia is a major energy supplier to the world – it accounted for 17% of global gas production and 12% of global oil production in 2019. And when some countries decided they would stop using Russian supplies, they found themselves competing for what was left in the world markets. Then it comes to supply and demand. The UK has to buy its oil and gas at market prices and, due to factors such as the war, these prices have shot up. Will I pay less if I just don’t send a meter reading? If you don’t send a meter reading, the supplier will charge you based on the amount of energy they think you’ve used – an estimate. Yes, this could be less than what you have actually used, but eventually the supplier will send someone to take a reading and you will have to pay the difference anyway. Of course, the estimates could also be more than you actually use – so you’ll overpay. With all this in mind, it is always best to send regular meter readings. What about campaigns that encourage people not to pay their energy bills? Many people are already struggling to pay their energy bills and the forecast for next year – the price cap is expected to top £5,300 in April – is dire. But think very carefully before canceling your standing order as it is not without risks. There are many things to consider – covered in our previous article here.
HOW ARE THE PRICE INCREASE AFFECTING YOU?
Let us know how the cost of living is impacting you. Share your story, photos or video with us using our app, private messages or email. :: Your report on Sky News apps :: WhatsApp :: E-MAIL By sending us your video/photos/audio you agree that we may transmit, publish and edit the material What state aid is there? Measures already announced include a £400 discount on energy bills for every household from October, with further help for those deemed vulnerable, such as pensioners and the disabled. Rishi Sunak and Liz Truss – both vying to replace Boris Johnson as prime minister – have floated some ideas, but we’ll have to wait until the result of the leadership contest is announced on September 5 to see what might come of them . Subscribe to the Daily Podcast for free on Apple Podcasts, Google Podcasts, Spotify and Spreaker What if I correct my invoice? Setting your invoice will give you certainty – you’ll know the price you’ll be charged for each unit and the flat fee for the duration of your contract. You will not be affected by the price cap during this period. In recent years, consumers have always had the best possible price for a fixed tariff, but this has changed – there are no tariffs significantly cheaper than the current price cap. What you could try to do is find a fixed tariff that is cheaper than forecasts of future price caps. Remember that this means you are looking about a year ahead. Money-saving expert Martin Lewis has some good advice on how to do this and says that if you’re offered a fixed rate for a year that’s no more than 115% above the current rate with a cap – or 120% more if you value budget certainty highly – then it’s worth considering. Most of the best fixed tariffs will only be offered by suppliers to current customers, so it’s always worth checking to see what your supplier has available. Just don’t get your hopes up. I’m having trouble paying my bills. What can I do? If you can’t pay your energy bills – or any other type of household bill, for that matter – don’t ignore it. Your first step should be to contact your supplier – the sooner the better. They must offer you a payment plan you can afford, according to regulator Ofgem’s website. You could also talk to a debt management charity such as StepChange or contact Citizens Advice.
