Martin Lewis explains how energy price cap will affect customers

Ofgem announced Thursday morning that the price cap will rise to £4,279 from January 1.

The energy regulator reviews the price cap quarterly and is due to present its next update in March.

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Martin Lewis, founder of the Money Saving Expert website, said the changes made in January are “mostly irrelevant” because household bills “were set by the energy price guarantee.”

The Energy Price Guarantee, announced by Rishi Sunak earlier this year, came into effect in October and will save the average household around £700 this winter, according to the government.

The price cap reflects the maximum amount a customer can charge per unit of gas and electricity.

It does not cap the total cost of your bill and customers can pay upwards of £4,279 if they use enough energy.

Energy is calculated per unit, so those who use more can spend more.

The government scheme limits the unit cost of electricity and gas to 34p per unit and 10.3p per unit respectively.

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Lewis elaborates further: “The price cap is based on wholesale prices (with a time interval) and determines what energy companies can charge.”

“When the cap is higher than the guarantee (as it is now), the state pays the difference, the household bills remain at the guarantee rate.”

The money-saving expert added: “In typical use the cap is currently £3,549/yr, so £1,049/yr is above the guarantee, the difference being essentially a government subsidy for energy retailers.

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“If in a hopeful future the cap is less than the guarantee, we’ll pay the lower rate.”

Without the government support, the average household would pay around £4,279 for their energy under the new cap.

The changes mean that the government will have to pay more to support households with their energy bills.

Experts at energy consultancy Auxilione estimate the new cap will cost the government around £15.1bn to support household bills between January and March.

Jeremy Hunt, the chancellor, has hinted that the scheme could end after April next year.

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