Martin Lewis@MartinSLewis
News! Energy Direct Debit Price Cap to FALL 12.3% on 1 April AND prepay becomes the cheapest way to pay. The 5 big things you need to know (pls share)
The Cap dictates the price the huge majority of homes in Eng, Scot & Wales pay for energy (so that's you unless you're on a fixed or special tariff) as most firms just charge the max. It moves every 3mths, mostly based on average wholesale rates, yet there’s a time lag eg this April to June Cap is based on Nov to Feb rates.
The new rates for 1 April have just been announced. In a nutshell, for every £100 a Direct Debit user spends on energy today, they’ll pay £87.70 for it from 1 April.
So it’s an improvement, and predictions are it’ll drop again in July, though overall prices are still too expensive, nearly double the price of the cheapest pre-crisis. The news is only just out, so here’s my quickly done need-to-knows…
1. Prepay will become the cheapest way to pay. Prepay standing charges have been lowered to equalise them with Direct Debit, yet as prepay unit rates are cheaper, that means overall for a typical user from April, prepay will be about 3% cheaper.
Prepay, which many of the most vulnerable use, was always the rip off, so this is a staggering turn around. And this is unlikely to be a flash in the pan - this pricing structure is likely to continue for the foreseeable future. (To be fair even on the current Price Cap prepay is fractionally cheaper, but that is due to a small Govt subsidy. On 1 April the gap will grow, and all due to real pricing).
So if you’re on the Cap, moving to prepayment will see a saving. Yet before you jump to it, a word of caution... if and when proper competition returns (see point 3) there are rarely any prepay deals. All the big money and discounts are thrown out to win new Direct Debit customers. So I strongly suspect Direct Debit will stay by far the overall cheapest for people who switch, but for those who don’t, it'll be prepay.
2. The energy bill poll tax will get worse. Standing Charges for Direct Debit will rise to £334/yr (from £303 now). Even though overall bills will fall, standing charges won’t. Here are the new average Direct Debit price cap rates (though they vary by region and we don’t have those yet, so it’s just averages)
New Rates for three months from 1 April (current rates)
- Elec standing charge 60.10.p day (53.35p). Elec unit rate 24.50p /Kwh (28.62p)
- Gas standing charge 29.60p day (29.60p). Gas unit rate 6.04p /Kwh (7.42p)
[I haven't got the exact rates for prepay and payment in receipt of bills yet - I'll put them out soon] I call standing charges a poll tax as you pay it regardless of usage eg many elderly who only use gas for winter heating, still pay for their meters in summer.
I believe it is a moral hazard, as those on lower usage get less benefit and are disincentivised from cutting bills. I’ve long campaigned for change and am pleased Ofgem is currently reviewing it.
Yet it told me the report isn’t ready yet, I hope for news within the next six weeks. And while it’d be tight, I’d love to see this review, and standing charges lowered, hopefully by 1 July price cap – and I’ll be pressing for that.
Why have standing charges gone up? Much is electricity distribution costs (a standard inflationary rise) some maybe bad debt provisions (which have gone up due to so many who can't pay - but I don't yet know if that's been put in the standing charges) Also this time, some of the rise is due to the prepay/direct debit equalisation. To cut prepay standing charges by £52/yr, Direct Debit had to rise £10/yr.
3. Switching deals may be kicked into action for 1 April as Ofgem’s changing one of the two main background rules that stop it (it should’ve changed both). From 1 April, Ofgem is ending the ‘Market Stabilisation Charge’ (MSC) regime it set up during the energy crisis, which means if you switch firm to cut the cost, the new company must compensate your old company if it’s offering a cheap deal because wholesale rates are cheaper.
This has effectively blocked most firms from offering properly cheap switchers deals, which is why the big savings that used to be possible from switching haven’t been around. It’s also why relatively paltry saving ‘existing customer only’ deals have been dominating.
I was furious about this MSC, and am sad to say lost my temper and used inappropriate language with Ofgem staff during the height of high prices in the energy crisis, when I was told it was being done to “stop the harmful effects of competition” (I made a public apology, my sentiment was right, my way of dealing wasn’t). So I am of course delighted to hear it is going, and hope it will at last spur real competition to drive down prices.
Yet sadly Ofgem has extended its other market restricting rule which bans ‘acquisition only’ tariffs for another year (though it may review that sooner). In other words, firms must offer existing customers the same deals they offer new.
In normal times I could support this. Yet at the moment when most firms are simply sitting on their existing customers, letting them languish on the Price Cap – with some of them raking in big profits for doing so – I think we should be stimulating competition as much as possible.
Ofgem has told me 'there is evidence that removing the ban would benefit consumers, but it was worried to do it at the same time as removing the Market Stabilisation Charge in case it was moving too quickly'. I disagree I think we should throw the kitchen sink at getting people cheaper deals, yet my hope is it has done enough to at least start the change.
4. The British Gas Price Promise deal doesn’t’ look as good as it did. This is a major tariff being offered to new and existing customers. It’s currently 12% cheaper than the market but promises to be £1 less than the April price cap, and now that won’t be as big a change (Cornwall Insight had been predicting a 15% cut). In which case, if you want to fix to get price certainty, then there are cheaper deals. To see a full list and analysis of what’s available, go search "Is it time to fix your energy MSE” for our guide.
5. You can undercut the Price Cap by 3%. The Eon Next Pledge tariff, which you can switch to, charges roughly 3% less than the Price Cap for the first year. To get it, you need to be on Direct Debit and have or get a smart meter. So if that works for you, and you’re planning to stick on the Price Cap, it’s a no brainer. Again, more details on MoneySavingExpert
Those are my opening thoughts. Hope they're useful.
