Martin Lewis reveals five things you need to know as Ofgem announces new energy price cap

Money-saving expert Martin Lewis has outline five things for consumers to know after Ofgem unveiled a drop in the price cap on Friday.

Household energy bills are set to fall to their lowest in two years from 1 April, with the average duel-fuel household set to see a fall of £238 - or around £20 a month over the course of a year.

Responding to the announcement, Mr Lewis unveiled five key bits of information for consumers, including tips on which is the cheapest way to pay, switching deals and how to undercut the price cap.

“The new rates for 1 April have just been announced. In a nutshell, for every £100 a Direct Debit user spends on energy today, they’ll pay £87.70 for it from 1 April,” he posted on X. “So it’s an improvement, and predictions are it’ll drop again in July, though overall prices are still too expensive, nearly double the price of the cheapest pre-crisis.”

According to energy consultancy firm Cornwall Insights, the energy price cap is expected to fall yet again in July as the UK continues to weather the storm after tensions in the Red Sea.

Despite this, bills remain 49 per cent higher than pre-energy crisis levels, with figures from the charity National Energy Action showing that six million households remain in fuel poverty. This is compared to 4.5 million in October 2021

Here are the money-saving expert’s top five things you need to know:

1. Prepay will become the cheapest way to pay

Mr Lewis began with the revelation that prepay meters will become the cheapest way to pay.

He said: “Prepay standing charges have been lowered to equalise them with Direct Debit, yet as prepay unit rates are cheaper, that means overall for a typical user from April, prepay will be about 3% cheaper.

“Prepay, which many of the most vulnerable use, was always the rip off, so this is a staggering turn around.”

He added a note of caution: “Yet before you jump to it, a word of caution... if and when proper competition returns there are rarely any prepay deals.

“All the big money and discounts are thrown out to win new Direct Debit customers. So I strongly suspect Direct Debit will stay by far the overall cheapest for people who switch, but for those who don’t, it’ll be prepay.”

2. The energy bill poll tax (standing charges) will get worse

He went on to warn that the “energy bill poll tax”, or standing charges, will get worse as standing charges for direct debits will rise from the current £303 to £334 per year.

“Even though overall bills will fall, standing charges won’t,” he said. “I call standing charges a poll tax as you pay it regardless of usage eg many elderly who only use gas for winter heating, still pay for their meters in summer.

“I believe it is a moral hazard, as those on lower usage get less benefit and are disincentivised from cutting bills.”

3. Switching to better deals may become easier

From 1 April Ofgem is changing one of the two main background rules that prevent energy companies from offering good switch deals.

The regulator is ending the Markey Stabilisation Charge (MSC) regime it set up during the energy crisis. This scheme meant if you switched firms to cut costs, the new company must compensate your old company if it’s offering a cheap deal because wholesale rates are cheaper.

Mr Lewis says this has stopped firms from offering cheap switcher deals.

He wrote: “I was furious about this MSC, and am sad to say lost my temper and used inappropriate language with Ofgem staff during the height of high prices in the energy crisis, when I was told it was being done to ‘stop the harmful effects of competition’”.

However, he warned that Ofgem has extended the second market restricting rule which bans ‘acquisition only’ tariffs for another year meaning firms must offer existing customers the same deals they offer new.

4. The British Gas Price Promise deal doesn’t look as good as it did.

Mr Lewis said this “major” tariff is being offered to new and existing customers. It has previously been 12 per cent cheaper than the market but it now promises to be just £1 less than the April price cap - which the money saving expert says “won’t be as big a change”.

5. You can undercut the Price Cap by 3%.

Mr Lewis highlighted the Eon Next Pledge tariff, which promises to charge three per cent less than the price cap for the first year.

Speaking on the Martin Lewis Money Show on Tuesday he said: “Everyone or almost everyone can beat the price cap by three per cent because the E.ON Next Pledge is a very good tariff and existing customers can switch to it on direct debit and it is three per cent below the price cap.

“So if the price cap drops, it drops, if the price cap goes up, it goes up but it’s always three per cent cheaper for a year, so it’s an easy simple win.”