Your Questions: Dealing with the energy price cap rise

With an 80% increase on the energy price cap
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Your Questions: Dealing with the energy price cap rise
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Energy price cap increase

There has been blow after blow to our finances in the UK in recent weeks. Ofgem’s recent announcement of an increase to the energy price cap, is the latest in a series of financial bad news for UK residents.

Homes across the UK are now facing potential energy bills of up to £3,549 per year for a typical household – an 80% increase following on from an already shocking 54% increase in April 2022.

The cost of living situation in the UK has become very difficult in recent weeks and we want to help out wherever possible. Some people may be wondering what an energy price cap is, why it’s gone up and how their bills may be affected by the changes.

We’re going to explain all of this for you in this article. Hopefully, we can help inform and ultimately help you save some money on your energy bills. Any saving is a bonus, especially at a time where massive price increases are causing strain on budgets nation-wide.

What is the energy price cap?

The energy price cap is a measure put in place that caps the amount that an energy supplier can charge for their default tariffs at a set maximum price.

This cap will apply to anyone on a default energy tariff which can be paid via direct debit or a prepayment meter.

If you are on a fixed term tariff or have a standard variable green energy tariff you will be lucky enough to avoid the price increases for the time being, as these plans will not be affected.

The capped price is not the highest possible price as it only applies to the maximum standing charge per day (the cost of your home being connected to the energy grid) and price per each unit of electricity and gas used. The total price of the bill can still vary depending on the amount of energy used in each household.

It may seem obvious, but the more energy used then the larger the bill will be regardless of the cap. But of course, the price cap will increase pricing no matter how much energy is used, as it effects the standard rate before energy consumption is even considered.

This may be a big concern for larger households that consume more energy in terms of heating, cooking etc. – especially if they have children or other dependents to look after.

Ofgem price cap increase

Ofgem stands for the Office of Gas and Electricity Markets, and they are the government department in charge of regulating energy prices in the UK. Their job is to try and help consumers by making sure all energy companies are capped at the same maximum price for their default tariffs.

This is to stop energy suppliers from having wildly varying prices with them being unable to start charging extortionate amounts. The cap on the default tariff was first introduced back in January 2019 as a temporary measure, with the capped amount being reviewed every 6 months. Ofgem have now announced this cap will be reviewed quarterly to adjust to the rising costs of energy more quickly.

In April of this year, the price cap was reviewed and increased by £693 for approximately 22 million energy customers in the UK.

Those paying £1,277 per year on default tariffs were then facing prices of £1,971. Anyone on a prepayment meter saw a price increase of £708, with their price jumping from £1,309 per year to £2,017.*

Speculation about potential further increases has been building over the last few months. Consumers have been understandably worried about how their bills will be impacted by another pricing rise.

Last week, Ofgem announced that as expected there would be another increase for the price cap starting from 1st 0ctober 2022.

This results in a further price increase where the average home is now looking at paying around £3,549 for their energy per year. This is a huge increase and one that is unwelcome news for many.

This announcement is a major blow to many households already worried about budgeting for heating their homes this winter.

Why did the energy price cap increase?

There are various factors in play that are causing the price of energy to soar at the moment.

A key reason for this price rise is the increase in gas import and wholesale costs which are up 300% since the start of last year. This coupled with Russia cutting off gas supply lines to Europe has caused prices to spike sharply.

The wholesale price of gas has risen steadily over the last few years with 31 energy suppliers going bust since the beginning of 2021**. The shortage in supplies plus the higher prices left them financially vulnerable and unable to meet the higher demand.

This has led Ofgem to attempt to stabilise the market by increasing the maximum price that can be charged for a default tariff, so companies can safeguard themselves against potential loss of profit.

Whilst this is positive news for suppliers, it has a direct effect on the prices consumers are paying – leading to a strain on household budgets UK wide.

UK energy crisis

The cost of living in a property in the UK has risen drastically in recent months, with fossil fuel and energy prices right at the centre of this. This has led to a full-blown energy crisis.

The term ‘crisis’ can seem very extreme, but it is understandable that it is being used in relation to this topic. There are many families facing the very real possibility that they will now struggle to heat their homes through the winter, due to the additional costs of energy.

The impact of rising energy costs is being felt across the country. Many households are now facing having to budget massively in order to afford to pay to heat and power their homes.

Businesses are also feeling the pinch, with many being affected by rising costs as well.

The eyes of the nation are now firmly set on the UK government as to whether they are going to intervene. The government has been developing several schemes this year to try and offer extra support during the cost of living crisis, which we will discuss in more detail below.

The government has even put pressure on energy suppliers. Those with high profit margins are being urged to reinvest some of this capital into renewable energy sources and greener energy options. There has been talks regarding a new windfall tax on suppliers if they do not do so.

There are still many people that will struggle even with the existing support schemes that are in place. There is mounting pressure for further additional measures to be put in place, to support those who are most vulnerable. Whether this will happen is still to be seen.

Why is there an energy crisis?

The energy crisis has been caused by numerous factors. The price of natural gas (both import and wholesale prices) has shot up massively due to supply shortages. This has meant proportionate rises in the cost of supplying and using these resources.

As time has gone on these prices have increased more and more, leading to spiralling costs for energy suppliers – and in turn the consumers who rely on them.

The war between Russia and Ukraine has also had a direct impact on the cost of energy, as Russia has now severed their gas supply to Europe. This has led to further shortages of supplies meaning even higher pricing.

As suppliers pay more due to higher demand and less availability, it makes sense for them to adjust their pricing to avoid losing profits.

While understandable, this domino effect has stretched some budgets to breaking point and left many UK residents extremely worried. With rising prices all around, any way of saving on energy bills will be a huge bonus.

Below we are going to highlight some tips and tricks to saving money on your energy bills – during an energy crisis.

How can I reduce my energy bills?

At such a difficult time, it is sensible to think about ways in which to reduce energy bills. This is especially true when heading into autumn and winter, where energy consumption will generally be higher due to the higher need for central heating.

There are several ways in which you can reduce your energy consumption, resulting in ideally lower bills for your household moving forwards. A few tips that may be useful are:

–      Reducing usage of high energy consuming appliances such washing machines where possible

–      Unplugging electrical appliances when they are not in use

–      Look into draught proofing windows and doors and insulation to keep heat in

–      Turning off lights when leaving rooms

–      Switching out appliances for ones that are specified as ‘energy efficient’

–      Reduce water consumption by taking shorter showers and avoiding baths

–      Using energy efficient light bulbs

–      Move large pieces of furniture away from radiators to improve heat circulation

All of the above may seem like small changes but combined could lead to significant savings on your monthly bill. Every little saving can really help your family when considering heating your home this winter.

There is also now a scheme being considered by the national grid, in which customers may be entitled to discounts on their energy bills if they avoid using appliances at peak times.

This would apply to the use of high consumption appliances such as washing machines and tumble dryers within the peak hours of 5PM-8PM.***

Though this scheme has not yet been approved, discussions with Ofgem are ongoing and updates are expected over the next few weeks. If successful, this would lead to a real opportunity for savings for a majority of households.

Help with energy bills

There has been mounting pressure on the UK government to step in and offer support to those who may struggle to heat their homes this winter due to rising energy costs. There are several plans already announced that may be of use to vulnerable people in need. These include:

–      £650 cost of living payment: anyone on specific forms of benefits or tax credits will be eligible to receive a £650 payment to deal with rising costs

–      Winter fuel allowance: you can qualify for a winter fuel payment if you were born on or before 25 September 1956 and have lived in the UK for at least one day during the week of 19-25 September 2022 (the qualifying week for this benefit). These cold weather payments can be helpful for those who are vulnerable.

 –      £300 pensioner cost of living payment: this an additional measure that has been put in place as a top up for any pensioner household eligible for a winter fuel allowance

 –      £150 disability cost of living payment: the recipients of various disability benefits will now also receive an extra £150 payment directly from the government to cover additional costs specific to their needs

All of these payments will be made directly to households using the bank account and bank details associated with the benefit payments. If you are eligible there is no need to worry about arranging this as it is automatic.

It may be possible you are eligible for the benefits that will lead to these payments though, so it is always worth reaching out and doing some research. Any additional funds will definitely be of use when it comes to paying your household bills moving forwards.

Energy bills council tax rebate

There is also rebate associated with council tax billing now available due to the rising cost of living in the UK. These payments are able to help you pay your council tax moving forwards but can also be used to help pay for relevant bills, such as energy bills as a form of extra support.

If your home is in England, Scotland or Wales and falls into council tax band A-D, you will be eligible for a £150 council tax rebate to assist with the rising cost of bills. There will be an equivalent to this supplied to households within Northern Ireland. This should be paid in September to the council tax account associated with your household if you pay tax by direct debit.

This is a part of an overall support scheme in which the government has pledged £15billion in support of rising costs with an energy bill rebate package. This will be worth up to £550 for approximately 28 million households in the UK. This will be as part of a discretionary fund that local authorities will be in charge of distributing appropriately.

This is excellent news for anyone who may benefit from these rebates. These additional funds will be a great comfort to those who may be worried about higher costs of energy consumption.

*according to Ofgem figures

**according to Forbes Advisor

***according to BBC News

Useful resources

Ofgem – Check if the price cap affects you

Energy Saving Trust – Energy at home – Winter Fuel Payment

Citizens Advice – Check how much your electrical appliances cost to use – Overall government support for the cost of living

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