What does Liz Truss’ energy bill cap mean for people on fixed tariff?

Energy bills: Martin Lewis discusses standing charges

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Prime Minister Liz Truss said typical households would pay no more than £2,500 a year for their energy bills for two years. However, many people who switched to a fixed tariff before the news will be worried that they may in fact be worse off.

British families who are struggling to pay their energy bills will have welcomed the news that energy bills will be capped at £2,500.

The Ofgem energy price cap is currently £1,971, but it was set to rise to £3,549 from October 1. A £400 energy bill rebate was already announced by Rishi Sunak, when he was Chancellor, which is set to be paid out in coming months.

While the October price cap rise will not go ahead as planned, many people had already switched to fixed tariffs in preparation for the increase.

Shortly after the announcement, MoneySavingExpert.com founder Martin Lewis issued an important update warning people that some of the information around fixed tariffs could now change.

The financial journalist previously indicated that Britons on a fixed tariff could either stay on them, or leave and switch to the new state subsidised tariffs with no exit penalties, but he has now said this will be up to the energy firm. 

“So it looks like, unless you fixed at over the new October price cap level, your fix will be cheaper than moving to variable.

“Many fixes that currently look costliest than price guarantee will end up cheaper.”

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What does the energy price cap mean?

Ofgem’s energy price cap limits the amount suppliers can charge for each unit of gas and electricity they supply, as well as the standing charge for each fuel.

However, it doesn’t mean households won’t pay more than the cap – if they use a higher number of units than the average, their annual energy bills will be more than the cap.

This chart shows how much each type of home will save under Liz Truss’ new energy price guarantee. 

Chris Shaw, CEO at Utility Bidder explained the the new Prime Minister, Liz Truss, announced last week that as of October, energy bills for typical households will be capped at £2,500, “instead of over £3,000 which has been causing financial anxiety across the UK”.

He continued: “Although a price cap of £2,500 is still an extortionate amount it will have a small impact on families who are on variable tariffs, but the price cap won’t affect everyone, especially homeowners who are on a fixed tariff.

“If you have agreed to a fixed tariff with your energy supplier then you will pay the same cost each month until your tariff expires.

“Although some people are paying more on a fixed rate, this does mean that you know exactly what is coming out of your bank account each month and it won’t go any higher than the agreed figure, until your tariff expires. So in short, any homeowners who are currently on a fixed rate won’t see their energy bills increase.”

Utility bidder also shared four tips for people looking to reduce their energy bills: 

1 – Be conscious of lighting
“Smart light switches include an occupancy sensor, which automatically turns lights on and Off. This can be extremely useful for rooms, such as conference rooms or meeting booths where lights are left on a lot. In the home, energy-saving light bulbs can help reduce energy usage. Also, be sure to turn any lights off when you leave the room to save wasting energy on an empty room.”

2 – Switch off electricals at night
“When you have finished working for the day, it’s important to switch off all devices such as computers, as not doing so can significantly increase your energy bill. Turning off a single monitor when it’s not in use and over the weekends could save up to £35 a year on electricity bills.”

3 – Invest in up-to-date technology
“Older versions of appliances such as fridges, computers and even boilers are far less efficient than modern versions. It is worth doing an appliance audit and looking into the appliances that could do with an upgrade.”

4 – Install a smart meter
“These can also be installed in the home to allow you to monitor your energy usage.”

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