What to do with energy prices spiking - Sarah Coles

The massive spike in the price of energy, the collapse of smaller providers, and the forthcoming rise in the price cap, have led to all kinds of panicky questions: ‘Are my bills going to go up overnight?’ ‘Am I safest sticking with a default tariff?’ ‘Should I switch away from a smaller provider?’

The massive spike in the price of energy has led to all kinds of questions.

And most commonly: ‘How much?!’ It’s worth taking some time to get to grips with what’s going on, in order to work out the best possible way to keep a lid on bills in this turbulent environment.

The global wholesale price of gas has gone through the roof. It’s up 250 per cent since the beginning of the year and 70 per cent in the last month alone.

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As ever with these things, there’s no single cause. It’s a toxic combination of a depressingly long list of unfortunate coincidences.

Last winter’s cold weather meant the UK ran stocks down and they haven’t been replenished; meanwhile there was growing demand from reopening economies around the world (especially in Asia); and low supplies from Norway, Russia and the North Sea (where oil platforms have been closed for maintenance after this work was put on hold during the pandemic).

We also rely on gas to produce a third of our electricity, and there have been interruptions in the alternatives – including a fire in cable providing electricity from France (which was already at half capacity); and a lack of autumnal winds powering turbines.

The wholesale price of gas dictates around half of our bills, so this price hike is raising concerns.

The good news for anyone worried about their bills is that for just under half of us, our costs won’t go up overnight, because we're on a fixed rate tariff, which means we don’t have to worry about price rises until our fix comes to an end.

It’s worth knowing when this will happen, and planning ahead for how you will deal with higher bills at that stage, but you don’t need to do anything right now.

The slightly less good news is that for the half of people on default tariffs, energy companies can’t pass the full impact of rising prices onto you, because of the price cap.

So while the cap means the cost of energy for a typical user will rise on 1 October – up £139 from £1,138 to £1,277, it won’t be going any higher for now.

If you’re in this position it’s worth knowing that this rise was announced in August, before the recent spike in prices. The new rises will be reflected in the next price cap change, in April 2022, when some people are predicting it will jump as much as £300.

And the bad news is that this is impacting energy companies. We’ve already seen a number of the smaller players fold, including Utility Point and People’s Energy just over a week ago, and Avro and Green Energy on Wednesday.

And there has been plenty of speculation that they won’t be the last. If you’re with one of these providers then you will be switched elsewhere automatically, but you will tend to be put on the default tariff.

If you were on a competitive deal, then unfortunately you’re one of the unlucky ones that will see your prices rise soon.

It raises the question of whether you should switch from a smaller provider to avoid this risk, but it doesn’t make financial sense at this stage. If you do switch, you’ll automatically leave behind a competitive deal you could have had for months.

There are no fixed deals better than the energy price cap on the market at the moment for you to switch to, so your costs will go up immediately.

If you stay put, your small provider could weather the storm, and even if they don’t, you will be automatically switched to a default tariff, where prices are capped.

The other big question for those on the default tariff is whether they should stick, or switch to a fixed rate.

The right answer will depend entirely on your priorities. If you want the certainty of a fix, then you’ll pay more now for one, but you will lock in the rate.

If you’re not so worried about certainty and want the chance of paying less, you could stick with the default, and hope that wholesale prices will fall before the next round of price rises kick in next April, so there are more deals on the table. You do, however, take the risk that prices could be even higher by then.

The only guaranteed ways of reducing your energy bills come from cutting back on how much you use, and getting help from elsewhere.

There are plenty of energy saving methods you can employ that don’t require any major lifestyle changes, from only filling the kettle with as much water as much as you need, to bleeding radiators and turning the thermostat down a smidge.

In terms of help, in addition to the winter fuel allowance (available to everyone) and cold weather payments (made to people on specific benefits if it gets cold enough for long enough), you may be able to take advantage of the warm homes discount scheme if you’re on a low income or getting the guarantee credit part of the pension credit.

If you owe your energy provider money, you may be able to get a grant from a charitable trust run by your provider.

You’ll need to provide plenty of information and go through quite an involved application process, but it can be a lifeline. And you should talk to your provider about what help they are offering for people who are struggling to pay.

At any stage you can talk to Citizens Advice or StepChange, who can help you find any help that’s available in your circumstances.

The bad news about energy price rises has been flowing thick and fast. If you set fire to all the column inches so far on the subject, it might be enough to keep you warm through the winter. However, this doesn’t mean you need to panic. Your prices may not be rising overnight, and even in October, the energy price cap will keep a lid on hikes.

It means there’s time to make a plan, change how you use energy, or get some help before you run into trouble.

Property sales bounce back

This week we discovered that property sales had bounced back to typical levels for August– after a big drop in July.

All eyes had been on these figures to see whether the market had ground to a halt after the removal of most of the stamp duty tax break, so there was some relief that July was a temporary pause rather than a full stop.

It’s good news for homeowners, especially those who bought at the height of the frenzy in June, who were worried that July’s dramatic fall in property sales was just the initial drop of a vertiginous plunge.

These figures will also be good news for those who’ve struggled to sell, particularly in and around cities, who’ll be relieved that they haven’t missed the boat and that plenty of buyers are still on the hunt for a new home.

Sarah Coles is a personal finance analyst at Hargreaves Lansdown.

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