Last week, energy regulator Ofgem announced the latest energy price cap would increase the cost of the average standard variable tariff to £3,549 – or £3,608 for those on a prepayment meter. My phone started ringing at 7am on the morning of the announcement. It hasn’t stopped ringing since.
As people absorbed the news, one common theme emerged in the comments and questions I was hearing. A significant majority of people will struggle to pay their bills when the new cap comes in at the beginning of October. Just to compound things, the mind-boggling projections for future price rises from various consultancies are terrifying people. There can be no doubt that we need urgent action from the Government now.
Given the almost inconceivable situation the energy crisis puts us all in, it’s not surprising that people are desperate for practical, realistic solutions. The problem is the options on the table are not particularly practical, or realistic. Which brings me to the new energy price ‘fixes’ that some businesses are offering their customers. Are they a viable option to counter the ever-increasing rise of energy bills over the coming year? Here’s an overview of the situation – and my view.
How does fixing your bill work?
In ordinary circumstances, fixing a price for energy makes sense. Knowing you’ve agreed a monthly rate that you can afford to pay that’s more or less in line with your usual energy consumption can insulate you from the typical price fluctuations that occur over a year or two in the energy market.
But the world has changed dramatically in the last year and fixing is no longer the ‘safe’ option.
Recently, I’ve heard from a number of people who have told me they have been offered limited time deals on energy price fixing. The deals that have been quoted are often astounding. If you were paying £1,700 this time last year for your energy and suddenly you’re offered a fix for £4,500 for a year, you know that’s not a good deal. But with some projections of energy prices for the average family creeping over £6,500 by April 2023, many are seriously considering these deals as the answer to the crisis.
The problem is we simply don’t know what the future holds. I’m deeply concerned that some people will panic and sign up to deals because they are worried about not being able to afford further price rises – even though the fixed prices they are being offered are neither feasible or affordable. Many of the people I’ve spoken to have told me that they feel obliged to take a bad deal for precisely this reason. But don’t be rushed in to anything. Here are some of the things you need to consider about what the future might hold.
What the future holds
It’s apparent to every expert, economist and consumer expert that I speak to that most people will struggle with the stratospheric rise of energy bills. And that means the Government must take decisive action – and take it soon. There are many (difficult) potential answers to the crisis, from nationalisation to windfall taxes. But the Government will need to make decisions with multi-billion-pound consequences. That matters because when those decisions are revealed and implemented, if the price of energy drops you could find yourself locked in to a much more expensive deal.
Expensive exit fees
Not so long ago, it wasn’t that expensive to leave your fixed rate deal early. Exit fees – the price you pay for breaking the contract early – used to be relatively manageable. But the Times reported recently that some exit fees have increased significantly, with some providers charging up to £600 to leave a contract mid-term. It has also been reported that energy exit fees have gone up tenfold. Exit fees are under the microscope at the moment, with the telecommunications industry being told to waive them for people who are struggling financially. For now though, exit fees do apply in the energy sector.
Energy discount schemes
The National Grid is reputedly planning on paying households that cut down on energy usage during peak times – typically 5pm to 8pm in the evening. The payments aren’t really going to make a huge dent in the cost of energy bills, but it’s possible that the energy industry may come up with other alternatives that couldsignificantly reduce the cost of bills. This shouldn’t preclude people on fixed rate deals from also benefiting from these schemes, but there remains the possibility that the energy industry itself might act collectively to force the price cap lower. We simply don’t know how that will affect people on a fixed deal.
So far, the analysts have proved to be accurate in their predictions on how energy costs might increase. But the further you look in to the future, the harder it is to definitively anticipate what the January or April cap might be. If you’re basing your decision to fix your energy bill on 2023 projections, then be aware that just because previous estimates were correct, it doesn’t mean that this is what the future will hold. Some of the analysts I’ve spoken to have expressed scepticism about some of the latest estimates. The truth of the matter is the energy wholesale market is incredibly complex and a wide range of disparate factors affect pricing.
Whenever times get harder, fraudsters start to circle. Be exceptionally wary if anyone cold calls you (or knocks on your door) offering cheap energy fixes. The latest scam is a basic but effective one. Scammers are offering people suspiciously cheap energy fixes, either by purporting to be from your energy firm or by acting as an ‘energy broker’ to get you a good deal. You pay your monthly bill to the scammer who then pays the energy firm. Only no payments are made, leaving you doubly in debt.
So what should I do?
Even allowing for all the volitivity that the future holds, calculating whether a fix is a good deal is incredibly complicated. As a very basic rule of thumb, if you are offered a year long fix that means you are paying no more than 130% of your current price-capped tariff, then it might – might – be worth considering.
If you are contacted by your energy provider about fixing an energy deal, then don’t feel panicked in to agreeing. Ask them to email or post you the information so you’ve got time to think about the deal and seek advice. There are several guides from consumer rights organisations online covering how to assess if a fixed deal is worth it or not, so do your research. Don’t forget to ask how much you will pay to leave the deal early too.
What if I can’t afford to fix my bill?
If you can’t afford the energy price rise – now or in the future – then take fifteen minutes to put together a basic budget covering the money you have coming in each month versus what you have to pay out. If you don’t have enough money to cover your outgoings – or you are left with little to cover you for emergencies – you meet the definition of financial difficulties.
According to Ofgem’s regulations, your energy provider should come up with a tailored plan to meet the needs of people experiencing temporary or long-term financial difficulties. You can read what businesses are supposed to do on Ofgem’s website here: https://www.ofgem.gov.uk/getting-help-if-you-cant-afford-your-energy-bills
The regulator says that you can ask for the following:
- A review of your payments and debt repayments
- Payment breaks or reductions
- More time to pay
- Access to hardship funds
- Advice on how to use less energy
- The option to go on the Priority Services Register – a free support service for a wide range of people struggling or who need support: https://www.ofgem.gov.uk/getting-extra-help-priority-services-register
If you feel that the business is not listening or helping – or they are making things worse – then you can take your complaint to the Energy Ombudsman for free. Make it clear to the business that you expect them to take no action against you while the matter is looked in to by the ombudsman.
Featured in Times Money Mentor – Martyn James