An 80% rise within the power value cap is anticipated to be confirmed right now, sending a mean yearly invoice from £1,971 to greater than £3,500 from October.
The cap has dominated the information in latest months, as customers watch nervously to learn how a lot increased their payments can go, however most of the driving forces behind the rises are past our management.
What is the worth cap?
The value cap units a restrict on the quantity suppliers can cost for every unit of gasoline and electrical energy used. It additionally units a most each day standing cost (what you pay to your house to be related to the grid).
The total determine isn’t a restrict on what your whole invoice may be – it solely displays “typical” utilization. So should you use extra power, you’ll pay extra. If you utilize much less, you may pay much less.
The value cap impacts clients in England, Scotland and Wales. In Northern Ireland, suppliers can regulate costs when they need, so long as it’s authorized by the Utility Regulator.
How typically is the worth cap reviewed?
The value cap was reviewed twice a 12 months however from October it is going to be reviewed quarterly, which means that any rise or fall in costs may be handed on extra rapidly to clients.
Regulator Ofgem says that is to minimise the variety of suppliers going bust – dozens have failed prior to now few years.
But in August, Christine Farnish stepped down from Ofgem’s board, telling The Times she didn’t consider Ofgem had “struck the right balance between the interest of consumers and the interests of suppliers”.
Who is affected by the worth cap?
The value cap applies to default tariffs, also called customary variable tariffs or SVTs.
You will likely be on considered one of these tariffs in case your mounted tariff ended and also you didn’t join a brand new one, should you’ve by no means switched your power tariff, should you had been with a provider that went bust, and you probably have lately moved house (though some suppliers will let you switch mounted offers, so examine).
If you might be on a set tariff, you aren’t affected by the worth cap. There can be a separate value cap for households on prepayment meters, and that is reviewed quarterly.
Ofgem estimates that 22 million households are on a variable tariff however it will enhance as extra folks come off mounted tariffs and realise that discovering one other one isn’t really easy (extra on that later).
Is the worth cap nonetheless a great factor?
Some are beginning to marvel if the worth cap has had its day.
Among them is Dr Craig Lowrey, principal guide at Cornwall Insight. Cornwall Insight is an power consultancy with a great observe document of forecasting the worth cap.
Earlier in August, Dr Lowrey mentioned: “…It may be time to consider the cap’s place altogether.”
He added: “After all, if it is not controlling consumer prices, and is damaging suppliers’ business models, we must wonder if it is fit for purpose – especially in these times of unprecedented energy market conditions.”
What is included in my power invoice?
At the worth cap announcement in October 2021, payments had been damaged down as follows: 36% wholesale prices; 25.35% community prices; 18.62% working prices; 15.33% environmental & social prices; VAT 4.76%; 2.24% different prices; 0.93% provider pre-tax revenue margin.
The environmental and social prices embody tasks to assist decarbonise power provide similar to enhancing house insulation.
The social prices embody schemes to assist weak clients, such because the Warm Homes Discount which offers a rebate of round £140 to greater than 1.5 million folks on sure advantages.
But it’s the enhance in wholesale gasoline costs that’s driving the rise in power payments proper now.
Why are wholesale gasoline costs rising?
Yes, you have heard this many occasions – it is the warfare in Ukraine. But there are different elements too, together with a chilly winter in Europe final 12 months which drained reserves, and a rise in demand from Asia, particularly China.
The UK hardly will get any of its gasoline from Russia, so why are our costs affected?
That’s true – Russia accounted for less than 6% of the UK’s gasoline imports and eight% of oil imports in 2019, in line with the Office for Budget Responsibility. And on Wednesday, the Office for National Statistics mentioned that Britain didn’t import any gas from Russia in June, for the primary time on document.
But Russia is a serious provider of power to the world – it accounted for 17% of gasoline and 12% of oil manufacturing globally in 2019. And when some nations determined they’d cease utilizing Russian provides, they discovered themselves competing for what stays on world markets. It then comes down to produce and demand.
The UK has to buy its oil and gasoline at market costs and, on account of elements such because the warfare, these costs have rocketed.
Will I pay much less if I simply do not ship a meter studying?
If you do not ship a meter studying, the provider will invoice you based mostly on how a lot power it thinks you’ve gotten used – an estimate.
Yes, this may very well be lower than what you’ve gotten truly used, however finally the provider will ship somebody out to get a studying, and you’ll have to pay the distinction anyway.
Of course, the estimates may be greater than you truly use – so you’ll be over-paying.
With all of this in thoughts, it’s all the time finest to ship common meter readings.
What in regards to the campaigns encouraging folks to not pay their power payments?
Many individuals are already struggling to pay their power payments and the forecasts for the approaching 12 months – the worth cap is anticipated to go £5,300 in April – are scary.
But assume very rigorously earlier than cancelling your direct debit, as it isn’t with out dangers. There are quite a few issues you must take into account – they’re coated in our earlier piece right here.
What authorities assistance is there?
Measures already introduced embody a £400 low cost on power payments for each family from October, with additional assist for these deemed weak, similar to pensioners and the disabled.
Rishi Sunak and Liz Truss – each vying to exchange Boris Johnson as prime minister – have put ahead a couple of concepts, however we must wait till the results of the management contest is introduced on 5 September to see what would possibly come of those.
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What if I repair my tariff?
Fixing your tariff gives you certainty – you may know the worth you’ll be charged for every unit and the standing cost for the size of your contract. You will not be affected by the worth cap throughout this time.
In latest years, customers have all the time been best-off on a set tariff, however that has modified – there aren’t any tariffs meaningfully cheaper than the present value cap.
What you can attempt to do is discover a mounted tariff that’s cheaper than the forecasts for future value caps. Remember which means you are wanting a couple of 12 months forward.
Money-saving skilled Martin Lewis has some good recommendation for methods to go about this and he says that should you’re provided a year-long mounted tariff at not more than 115% above your present price-capped tariff – or 120% extra should you strongly worth budgeting certainty – then it’s value contemplating.
Most of the most effective mounted tariffs will solely be provided by suppliers to present clients, so it’s all the time value checking to see what your provider has out there. Just do not get your hopes up.
I’m struggling to pay my payments. What can I do?
If you may’t pay your power payments – or some other kind of family invoice, for that matter – do not ignore it.
Your first step needs to be to contact your provider – the sooner, the higher. They should give you a cost plan you may afford, in line with regulator Ofgem’s web site.
You might additionally discuss to a debt administration charity similar to StepChange, or contact Citizens Advice.
Source: information.sky.com”