Simple step cuts £140 off gas and electricity bills to beat energy cap hike | Personal Finance | Finance

Once again many face a desperate choice between turning the heating on or putting food on the table. But this time there are no government cost-of-living payments to see people through.

As if energy bills weren’t already high enough, regulator Ofgem’s price cap soared by 10% from October 1 to £1,717 a year, and will rise another 1.2% from January, lifting bills by another £21 to £1,738.

Energy bills are around £500 a year higher than before the 2022 energy shock.

Your first step is to make sure you are on the best possible energy tariff.

The switching market has been out in the cold since a staggering 68 energy suppliers went bust in 2022, including Avro, Bulb, Igloo and Pure Planet.

But the market is hotting up again as suppliers are able to offer customers competitive tariffs below the Ofgem price cap.

Around 1.5 million household have switched over the past three months and Ofgem is urging customers to shop around for the best deal, with eight tariffs charging at least 10% below the price cap.

Switching saves households £140 on average, Ofgem says.

There is a choice of 22 household energy suppliers, although most switchers stick to the big suppliers British Gas, EDF Energy, E.ON, Octopus Energy, OVO and Scottish Power, who have 70% of the domestic electricity and gas market. But don’t rule out smaller competitors if you spot a deal you like.

Start by hitting comparison sites such as Go.Compare, Moneysupermarket and Uswitch.

There are three main types of energy tariffs, explains Gareth Kloet at comparison site Go.Compare Energy – Variable tariffs, standard variable tariffs and fixed-rate tariffs.

The SVT is the default rate you automatically revert to once an initial deal ends, and tends to be the most expensive.

SVTs don’t have exit fees, leaving you free to move on at any time. Fixed-rate tariffs charge the same rate for your gas, electricity and standing charge for the term of your contract, typically 12, 18 or 24 months.

That means your unit charges will stay the same throughout, although your bill will vary according to your energy usage.

A fixed-rate tariff can provide stability and peace of mind, allowing you to plan your energy costs. For example, E.ON Next’s Fixed 18-month v6 tariff allows customers to freeze prices for two winters.

They do have one potential downside, Mr Kloet said. “If the energy cap falls during the term of your fix, you won’t benefit and may feel like you’re overpaying.”

You can switch from an overpriced fixed-rate tariff but there’s a catch. Typically, you’ll have to pay mid-contract exit fees.

As an example, OVO Energy’s one-year fixed rate charges a £50 exit fee per fuel, which adds up to £100 if you switch both gas and electricity.

“Exit fees are likely to outweigh any savings you make from switching, but may still be worth checking just in case,” Mr Kloet said.

So Energy, for example, offers a one-year fixed rate charging £1,613.82. That’s, a saving of £103.18, or 6.01%, for the average household.

The E.ON Next Fixed 18-month v6 tariff charges £1,617.56, an annual saving of £99.44 or 5.79%.

If you decide to switch, first find the name of your current energy supplier and tariff, your energy usage or how much you pay in a year. You can find all these details on your latest bill or annual statement.

Then head to a comparison website to see what deals are out there and which fit your needs. Some tariffs are only made available to the supplier’s existing customers, so you may not always be able to switch.

Under the Energy Switch Guarantee it should take around 21 days to complete and you don’t even need to tell your current supplier you are leaving. This will all be handled by your new supplier. Your energy supply should continues uninterrupted throughout.

Mr Kloet added: “If you find a good deal, you can always ask your existing provider if they’ll match it.”

Tim Jarvis, director general of markets at Ofgem, says as well as shopping around for a better deal, examine how you pay your bill. “Around five million pay by standard credit payments, which means paying for energy after it has been used.

“This is much more expensive, particularly over the winter months.” He says the cheapest way to pay is typically via direct debit, where the money is automatically taken out of your bank account every month or sometimes quarterly.