Consumer champion Martin Lewis issues energy bill warning amid 'catastrophic' price rise

Residents in Burnley and Padiham worried about the soaring cost of energy bills are being urged to look at the options available to them.

Soaring gas prices could leave people facing agonising choices this winter. Photo: Getty
Soaring gas prices could leave people facing agonising choices this winter. Photo: Getty

The advice comes after money saving expert Martin Lewis warned many may face the choice between eating and heating this winter.

The consumer champion said that the situation is “catastrophic” and said intervention is needed to help consumers.

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Soaring wholesale gas prices are putting an upward pressure on energy bills.

The surge comes as households face a range of financial pressures, with some still reeling from wage cuts or freezes during the coronavirus pandemic and also with imminent cuts to Universal Credit and the ending of the furlough scheme.

The founder of MoneySavingExpert.com warned that some people who have previously fixed into cheap energy deals may see their bills surge by as much as 40% when they come off them.

Mr Lewis said: “The situation is catastrophic, in a way we have never seen before.”

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Regulator Ofgem regularly sets an energy price cap, which acts as a “backstop” protection for customers on default tariffs and takes into account the underlying costs to supply energy.

From October 1st the price cap will increase to £1,277.

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Mr Lewis said it should be remembered that the price cap is based on typical use, so those who use more energy pay more.

He said the cap was based on prices in the run-up to August.

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Mr Lewis continued: “Prices have exploded since then, again. So the price cap will change in six months.”

Mr Lewis suggested that, based on the “current run-rate”, the price cap from April 1st may potentially be as much as over £1,500 a year, based on typical usage.

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He continued: “As I never thought I would say, one option is prices have gone up so much the price cap is now not a bad deal for the next six months and you get six months of protection.

“But you could bide your time and cross your fingers and wait and just go onto the price cap when your current deal finishes… because it cannot go up until April 1st.

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“The second option is to try and lock into a one or two-year fixed rate.

“Now, there are still a couple of tariffs out there where you can lock in for a year or two years at below what the price cap will be on October 1st.

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“They offer protection if things do not get better.

“Everybody needs to understand you will be paying more for your energy.

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“This is not a question of saving money, this is a question of reducing the rise.”

Mr Lewis stressed that households need to make sure that they are able to see the options available across the whole of the market when comparing energy deals.

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Mr Lewis continued: “If you’ve been on a cheap fix and you’re coming off a cheap fix, you could very easily be paying 40% more on your energy bills, even if you do what I’m saying to reduce the rate going up.”

He warned: “There will be many people making the devastating choice between heating and eating.

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“The Government is talking about intervening with energy companies, it needs to intervene with consumers as well.”

There are also fears that more small energy suppliers could go bust.

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According to Ofgem’s website, in situations where an energy firm does go bust, it will protect any credit balance customers have, as well as their supply.

An Ofgem spokesperson said: “We know that the current situation with high wholesale energy prices is putting pressure on customers and energy companies. This is a global issue. We have the systems and processes in place to ensure that customer needs are always met.

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“For those customers who are with energy companies that can no longer trade, a new supplier will be appointed. Ofgem is working closely with Government to manage the wider implications of the global gas price increase.”

Lisa Barber, Which? home products and services editor, said: “Deals at the level of the price cap may soon be among the best available – but there is a risk that, if the crisis continues, anyone who stays on a standard variable tariff could see another substantial price hike after the cap is reassessed early next year.

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“Anyone wanting to switch their energy deal, for example those on a standard variable tariff, may want to switch now to ensure they have some stability for the year ahead, as it is still possible to find competitively priced fixed rate deals.”

A spokesperson for the Citizens Advice Bureau said: “We have a British Gas Energy Trust project which helps people apply for grants to pay energy bills, and we have seen more demand through that recently.

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“I imagine if people need to switch energy providers it’s going to cause quite a lot of upset, there’ll be people who have real uncertainties about what’s going to happen.

“We’re in the process of issuing new guidance for people whose energy suppliers go out of business, but at the moment it all seems quite uncertain until there’s a decision from the Government as to whether some of the suppliers will get grants, or some of the bigger ones will be able to take on new customers from the ones in trouble.

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“We’re still waiting to see what’s going to happen but anyone with worries about it can contact their local citizens advice for help and advice on their bills.”