How to cut heating costs as energy bills increase for millions

The 0.2% increase to Ofgem’s energy price cap will equate to a rise of about 28p a month for the average household in England, Wales and Scotland remaining on a standard variable tariff. This amounts to an average overall bill of £1,758 a year, up from the current £1,755.

This is despite wholesale energy prices having dropped in recent weeks. Regulator Ofgem said the January 1 increase to the cap, which was announced in November, was being driven by the funding of nuclear power projects and discounts to some households’ winter bills.

How do I know if I’m on the energy price cap?

Martin Lewis has been vocal in his criticism of what he calls ‘the pants cap’. On his podcast, he said: “Two thirds of homes in England, Scotland and Wales, are on the price cap. Basically, that’s you if you’re on your firm’s standard tariff. If you’re not on a fix, if you’re not on a special deal, you’re on the bog standard do nothing tariff, you’re on the energy price cap. And it isn’t good.”

The term is quite confusing and it’s important to note it’s not the maximum price you will pay – it’s an average. If you use more, you will pay more.

The cap was introduced on January 1 2019 by regulator Ofgem, with the aim of preventing the millions of households on expensive variable tariffs from being ripped off.

But it only limits what you pay for each unit of gas and electricity that you use.

What is the best energy price fix to beat the cap?

Martin says to choose the best-fixed deal, customers should use a comparison site that takes in the whole market by default rather than cutting out some suppliers who do not pay to be listed. He recommended his own Cheap Energy Club, as it compares all energy deals, rather than just the sponsored options.

Which? energy editor Emily Seymour adds: “There are several deals on the market for lower than the price cap so now is a good time to shop around if you’re looking to fix.

“As a rule of thumb, we’d recommend looking for deals cheaper than the current price cap, not longer than 12 months and without significant exit fees.”

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Why have bills gone up again despite wholesale costs falling?

An increase to standing charges – the amount consumers pay per day to have energy supplied to their homes – was also largely due to costs linked to the Government’s Warm Home Discount scheme.

Around 2.7 million more low-income households, including 900,000 families with children, are eligible for the £150 discount this winter.

However, the regulator said the new price cap was £37 lower than a year ago when adjusted for inflation.

The price cap increase comes as a warnings for snow and ice and amber cold health alerts have been issued in many parts of the country.

Yellow cold health alerts have been issued by the UK Health Security Agency (UKHSA) for London and the East, South East and South West of England, as well as the East and West Midlands and Yorkshire and the Humber.

Ned Hammond, the deputy director of Energy UK, which represents suppliers, said: “While the new price cap coming into force only includes a small rise, it still means energy bills are too high for too many households. Gas prices may have declined in recent months but remain higher than previous years, while increasing policy costs are also adding to bills.

“The Chancellor’s intervention in the Budget to move a significant amount of policy costs into taxation was welcome and will provide much needed relief for households across the country when this comes into effect in April.

“However, even with this intervention, energy bills are expected to remain well above pre-energy crisis levels. With over six million households in fuel poverty and domestic energy debt reaching record highs of around £5.5 billion, a comprehensive plan is needed to further bring down bills and truly address these challenges.”

Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said: “It really is a case of every little doesn’t help as households spend a fifth winter in the energy bills crisis. Tiny movements in the price cap still hit hard for families choosing between heating and eating.

“People continue to live in cold, damp homes, where the risks go beyond discomfort and into real danger, including exposure to carbon monoxide. Younger adults, private renters and households with children are among those most at risk as people cut back on heating, delay repairs and try to block draughts just to stay warm.

“Meanwhile, the wider energy industry has made more than £125 billion in UK profits since 2020, including firms operating in a dying North Sea. This isn’t a crisis of scarcity, it’s a crisis of priorities. Ministers must move beyond short-term price cap tweaks and get serious about ending fuel poverty by investing in energy efficiency, reforming energy pricing, introducing a fair social tariff and fully funding the Warm Homes Plan.”

Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “As we move forward, vulnerable households must be protected. Cutting bills today is welcome, but without targeted support and a clear plan for fairer funding, the benefits of net zero could bypass those who need them most.”

Warm Home Discount 

An extra 2.7 million households will qualify for the Warm Home Discount this winter – but their name must be on the bill to qualify automatically.

Millions more people will now be eligible for £150 off their bills, helping ease the cost of living.

These are the main means-tested DWP benefits:

• Housing Benefit 
• Income-related Employment and Support Allowance (ESA) 
• Income-based Jobseeker’s Allowance (JSA) 
• Income Support 
• Pension Credit (Guarantee Credit and Savings Credit) 
• Universal Credit

In England and Wales, this means households in receipt of Housing Benefit, Income-related Employment and Support Allowance, Income-based Jobseeker’s Allowance, Income Support, Pension Credit and Universal Credit will now be eligible.