The energy price cap is changing in the UK - here’s what it means for you

An extension to the government’s energy price cap means around 11 million households across the UK will be protected from being overcharged on their energy bills.

The cap has been extended until the end of 2021, and ensures households on standard variable and default energy tariffs will save between £75 and £100 a year on dual fuel bills.

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What is the energy price cap?

The energy price cap was introduced by the government in January 2019 as a means of shielding those least likely to shop around for the best deals - such as the elderly - from being charged excessive prices.

The government says the cap has saved customers around £1 billion a year, equivalent to around £75 to £100 annually for typical households on default energy tariffs.

The cap is set by the Office of Gas and Electricity Markets (Ofgem), and energy watchdog Which? reviews it every six months to reflect changes in the cost of supplying energy.

Ofgem recommended that the price cap on household energy bills be kept in place beyond 2020 in August, and the government's announcement is a direct response to that.

In the first six months of 2020, nearly three million electricity and over two million gas customers switched suppliers to cheaper tariffs.

But more than half of customers are still on standard variable or default tariffs, where, in the absence of the cap, they would likely still be paying excessive charges for energy use.

What does it mean for me?

In August, Ofgem set the energy cap at £1,042 per year for an average household, the lowest the limit has been so far.

The new cap came into effect this month, and will be in place for six months until Ofgem reviews it again.

Ofgem chief executive, Jonathan Brearley, said at the time, “Millions of households, many of whom face financial hardship due to the Covid-19 crisis, will see big savings on their energy bills this winter when the level of the cap is reduced.

“They can also reduce their energy bills further by shopping around for a better deal. Ofgem will continue to protect consumers in the difficult months ahead as we work with industry and government to build a greener, fairer energy market.”

Richard Neudegg, head of regulation at Uswitch.com, said, “There is a £232 difference between the new October level of the price cap and the cheapest fixed deal on the market now, so there is still a lot of money to be saved by moving off a default tariff.

“With Ofgem already saying that the cap may need to rise in April if wholesale trends continue, locking in a 12-month fixed deal is looking like an even smarter choice for consumers.”

For more information on the Energy Price Cap, head to Ofgem’s website