Consumer expert Martin Lewis says households may not need to act amid a record surge in gas and electricity prices.
The energy market has been hit by a 250% rise in wholesale prices that has sent the cost of gas and electricity soaring in the past fortnight – with six firms going bust as a result.
However, switching and ditching for a new fixed deal could actually leave you far worse off.
Speaking live on the ITV Money Show on Thursday, Martin Lewis said: “In 2020, energy prices were relatively stable.
“At the beginning of this year they got a bit higher, but since then it has exploded.
“Wholesale prices, the amounts firms pay for gas, have risen fourfold, and that is what is causing gas and electricity to go up.”
Mr Lewis said households on the energy price cap – mostly those on standard variable tariffs – are now on the cheapest deals.
“Over 50% of homes are on the energy price cap. That is what you end up on if your firm goes bust or you don't switch,” Martin explained.
“On October 1, the cap will rise from £1,138 to £1,277 based on typical usage. That’s a 12% rise or 13% if you’re on a prepayment meter.
“The price cap changes every six months. The latest increase is based on wholesale prices from February to July this year – it is not based on the explosive rise we’re experiencing now.
“On April 1 next year we will have a new price cap which will be based on the current wholesale prices up to the end of January. Analysts say it will rise by another 14% to £1,455 a year based on typical usage.
“What you do right now all depends on April – as prices are about to get even higher,” he warned.Read More
Should I switch to a new fixed deal or wait?
“If you were on a cheap fixed deal that’s ended, the fact of the matter is that you will be paying more.”
Comparisons show a typical household that spent £1,000 on energy last year will now pay £1,500 for the next 12 months.
“If your deal ends now, you'll be paying 50% more if you go for the energy price cap (variable) or 60% more if you go for the cheapest fixed.
“That means you’re better off just rolling onto your provider’s variable tariff.”
“These deals are protected by the cap,” explains Martin.
“If you’re on the cap now, you are getting energy at below that firm’s cost price.”
But don’t get too comfortable.
“If you go onto a variable deal, think of it as a six month fixed tariff where you are free to leave at any time," he said.
“The hope is wholesale prices will come down, there will be cheaper prices available and you can then ditch the cap and go somewhere else when that happens next spring.”
Martin says some may choose to lock in a new deal for security.
“The alternative is switch to the cheapest fixed but it is going to be costlier than the price cap.
“The only reason you should go for a cheap fixed is if you think wholesale prices are going to rocket more after that and need certainty.
“Always do a comparison and have a look.”
If you’re in a cheap fixed deal with several months to go, take advantage of it and stay there.
“When it ends you’ll roll over to the price cap anyway, so cling on to the savings while it lasts.”
Companies are collapsing – so protect your credit now
In a final warning, Martin says households should check their credit balances.
“Go on your supplier's website and take a screengrab of your credit balance.
“This isn't about small firms, it’s about mid to big ones too.
“Get a screen grab every week while we're in this crisis.
“That's because they will take the site down if it collapses and you may find you need evidence of your balance to carry it over to your replacement supplier.”Read More Read More