Martin Lewis explains how energy price cap works and how bills may rise above it

By Hiyah Zaidi
Thursday, 31st March 2022, 1:28 pm
Martin Lewis' MoneySavingExpert explains how to get free £2,000 for your first house (KenMcKay/ITV/Shutterstock)
Martin Lewis' MoneySavingExpert explains how to get free £2,000 for your first house (KenMcKay/ITV/Shutterstock)

Martin Lewis has explained why your energy bills might be higher than the new price cap rate.

The price cap, which Ofgem is increasing its price cap by 54% on Friday, isn’t actually a cap on how much you pay overall.

For anyone on a default tariff paying by direct debit, the price cap increases by £693 from £1,277 to £1,971.

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Pre-payment customers will see a bigger rise, with their price cap increasing by £708, from £1,309 to £2,017.

What is the energy price cap?

But the energy price cap isn’t an absolute cap on bills - it sets a limit on the rates a supplier can charge for each unit of gas and electricity you use, and the rate applies to anyone who is on a standard default energy tariff.

Martin explained how the Ofgem price cap works during a Cost of Living special on ITV’s Good Morning Britain today.

The MoneySavingExpert founder said: “The £1,971 a year which is quoted as the new price cap from April 1 is just an estimate of what somebody on typical use would pay”

“There is no actual price cap. It’s actually a cap on the unit rates and standing charges you pay for energy, which means if you use more, you pay more.

“If you use less, you pay less. This varies by region and this is what the price cap is. It’s a cap for how much you can pay.”

Martin said the “vast majority” of customers in England, Scotland and Wales would be on the price cap, but went on to say: “It does not cap the total amount you pay.”

Households on default rates include those not on a fixed rate, including those who didn't lock into a fixed rate after their previous deal ended.

You'll also be on a default rate if your energy firm went bust and you were moved to another supplier.

What else had Martin Lewis advised?

Martin has advised households to take a meter reading on 31 March before the new price cap rates.

Then you can tell your energy provider exactly how much gas and electricity you used before the price cap hike.

Martin said in his latest MoneySavingExpert article: "You are drawing a line in the sand that says to them: all the energy I have used until this point should be charged at the cheap rate"

"Do not estimate my usage, I am locking it down so you cannot charge me any more than the amount I've actually used from 1 April onwards."

Martin has also warned about cancelling direct debits, as this may push up your bills. It's all to do with how the price cap is calculated.

The price cap is £2,100 for those wanting to pay quarterly which means you're paying over 6% more for the same usage than you do by direct debit.