Best energy tariffs: Ofgem price cap limit predicted to drop £85

Experts predict Ofgem will drop the price cap limit by £85 when it reveals the new level tomorrow.

Currently, the price cap limit is £1,127 for those on standard variable tariffs and £1,164 for customers with prepayment meters.

The new cost for both meters will be revealed tomorrow with expectations it will reduce to around £1,042 for SVT households. 

However, energy experts have warned the watchdog set cap is still a ‘rip off’ and households would be far better off changing to a fixed tariff rather than relying on the limit.  

It is estimated that 11million customers on an SVT collectively miss out on a collective saving of more than £3billion by not switching to a competitively priced fixed or variable tariff.   

Ofgem introduced the price cap on 1 January 2019 as a means of capping how much households on pricey default tariffs could pay for their energy each year.

It is reviewed every six months to accommodate any changes in the energy market including wholesale costs, which have had significant drops in recent months. 

Other factors to decide the cap limit include network costs, policy costs, operating costs and prepayment meter costs. 

However, experts sat customers could make more difference to their bills by switching to a fixed tariff, which are usually much cheaper.

Stephen Murray, energy expert at MoneySupermarket, said: ‘The expected news that Ofgem is due to drop the price cap by £85 is good news at first glance, but there are more savings to be had if people switch to a fixed tariff now.

‘This will allow them to make the most of the current low wholesale energy prices. If you’re on an expensive standard variable tariff and want to save hundreds of pounds on your annual bill, switch your energy supplier as soon as you can. 

‘Staying with your supplier for too long without switching means that, more often than not, you’ll drop onto a default tariff and pay way more than you need to. 

‘And with the majority of people still spending more time in their homes due to Covid-19, and with colder months on the horizon, it has, arguably, never been more important to make sure you are on the best deal for you.’

Other criticisms of the price cap include that it damages healthy competition in the sector as it does not encourage suppliers to compete for business by offering better tariffs or improving customer service. 

Many suppliers were also criticised for pricing their default tariffs at the limit, using it as a target, rather than an actual cap. 

Research from Compare the Market has revealed that switching to one of the most competitive fixed or variable rate tariffs on the market people could save households an average of £302 a year.

The comparison sites new Energy Price Cap Update shows that the average price for the top 20 cheapest available tariffs on the market is £825 – meaning people could be £302 better off by switching provider rather than rolling onto an SVT.

Since the introduction of the current price cap level on 1 April, prices in the market have dropped to the lowest level in three years, with the average cheapest available dual fuel tariff now costing around £800.

However, prices have been rising slowly since then, with average cheapest tariffs climbing almost £20, or 2.4 per cent, in the last month. 

Peter Earl, head of energy, at Compare the Market, said: ‘The energy price cap is clearly a rip off compared to the best value deals on the market.

‘Whether the regulator decides to raise or lower the cap will not make significant difference to those households on a standard variable tariff who will continue to pay over-the-odds for their energy.

‘We have recently seen the cheapest deals reach temptingly low-price levels, so switching supplier sooner rather than later means you won’t miss out on high savings.

‘The price cap should not be seen as a “good” price to pay for energy; if you can’t remember the last time you switched, or have never done so, you are likely paying hundreds of pounds more a year to your energy supplier than you need to.’

Best fixed tariffs on the market  

Currently the best fixed tariff available is with challenger supplier, Avro Energy, on their Simple and SuperGlow tariff, which is fixed for a year. 

The average price comes in at £810.34, however, it isn’t a green deal which could put some more environmentally friendly customers off. 

The next best available deal is with Outfox the Market on its Fix’D 20 13.0 offer which costs £820.43 a year, on average, and is a green tariff. 

Eon is the only Big Six supplier to feature on the top ten list with its Fix Online Exclusive v44 deal that works out at an average of £840.93 a year. 

It is a green tariff, however, customers will have to pay a £60 exit fee if they want to leave their contract early.