Ofgem announced today that the price cap for standard tariffs will drop by £17 per year to £1,162 per year, for someone with typical usage, from April 1, 2020. In addition to the reduction in the level of the default price cap, the level of the pre-payment meter cap will also fall by £17.
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The cap protects around 15 million customers in total from being overcharged and they can save even more from shopping around, Ofgem said.
Ofgem chief exec Jonathan Brearley said: “The default price cap is designed to protect consumers who do not switch from overpaying for their energy, whilst encouraging competition in the retail market.
“Suppliers have been required to become more efficient and pass on savings to consumers.
“In its first year, the cap is estimated to have saved consumers £1 billion on average on their energy bills and switching rates have hit record levels.
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Martin Lewis has issued a warning about saving money on energy bills after the price cap news (Image: GETTY • ITV)
“Today’s announcement is further good news for the 15 million households covered by both price caps who will see their energy bills fall in April.
“Households can reduce their energy bills further by shopping around for a better deal.”
Ofgem said that switching away from a default tariff to a cheaper deal could save a typical household up to £305.
The energy regulator added that households are encouraged to shop around in a bid to access these savings.
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Following the news, Martin Lewis, founder of MoneySavingExpert.com and its Cheap Energy Club, has urged members of the public to be aware of how shopping around could lead to potential savings.
The financial journalist said that while some people may think they’re saving money via the price cap, billpayers can actually be losing out on better options.
Mr Lewis, who often shares his money saving tips on ITV shows such as This Morning and Good Morning Britain, said: “This standard tariff price cut may illicit some mooted cheer, as millions of inactive customers will see their summer energy bills shaved down a touch.
“Yet the saving is a hollow one. While the price cap is defined as a fair price, a fair price isn’t a good price.
“If you think you’re doing well on it, actually you’re still ripping yourself off.
Martin Lewis explained the ‘prices of the cheapest deals have plummeted’ (Image: GETTY)
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“The price cap may have fallen by a smidgeon, but the prices of the cheapest deals have plummeted, and are getting close to 2016 prices.
“And the price cap is only for six months, while many of these cheap deals are one-year fixed rates, meaning you’re locked in on a low rate for longer.”
He continued: “So while the new price cap rate from April is £1,162 a year for someone with typical usage, the market’s cheapest deals are a little under £800 for the same usage.
“And even some ‘big six’ firms often have far cheaper deals available than their standard ‘price capped’ tariffs.
“For example, British Gas currently has a one-year fixed tariff at £865 a year, which includes a year’s free boiler cover.
Martin Lewis explained how some people could save more than £300 a year (Image: GETTY)
“In other words it’s the same gas, same electricity, same safety, same customer service, but a cheaper price and better terms.
“Better still, existing customers can get it, saving £300+ a year – but not by calling up and asking, it only makes it available via comparison sites.”
Peter Earl, Head of Energy at comparethemarket.com, said: “A cut of £17 to the price cap for the average household sounds like great news but behind the fanfare, millions of energy customers may incorrectly believe that their energy bills will fall.
“The reality is that only customers on the typically more expensive standard or default tariffs will automatically see their energy costs decrease.
“The price cap is a price fix – it is the maximum amount energy providers are permitted to charge their customers on standard and default tariffs, and as a result it should be seen as the absolute ceiling of what the public should be paying.
With the cheapest average one year fixed tariff on the market more than £300 cheaper than the price cap level coming into effect on April 1, switching provider is an effective way for consumers to save money and beat the cap.”