Is switching still worth it?
Posted by Anna Carlini on 22 February 2019 at 5:16 pm
When the price cap was first introduced, we received a few messages asking whether switching was still worth it. Then when the price cap was raised, we took a look at the market and asked ourselves whether it truly was. The last few months have been a turbulent time for energy companies with headlines filled with small companies going bust, the introduction of a price cap, and then the almost immediate raise of the cap. When browsing through energy tariffs on comparison websites today, it is easy to understand why many are wondering if switching is even worth it anymore.
The energy price cap
The energy price cap was announced by the government in September 2018 and came into force on the 1st January this year. The aim of the cap is to protect those who do not regularly switch energy supplier from paying over the odds in their energy bills. As a result it only applies to standard tariffs as these are usually the premium rates.
This cap was welcomed by some energy suppliers as a protective measure to prevent exploitation of the vulnerable, as those on the standard tariff are often elderly or with long-term health issues. However many energy companies are expecting a significant loss in revenue and are trying to save costs by raising the prices of other tariffs. This is having a dramatic effect on an already unsettled market and having a big impact on the potential savings made by switching energy supplier.
Many of the Big 6 have now increased their previously cheaper tariffs to just below the price cap threshold. Named ‘bunching’, the majority of tariffs on offer now are clustering around the cap, where before there was a sizable difference between tariffs and the capped amount. Bulb, a smaller energy company, recently criticised the big 6 for treating ‘the price cap as a target rather than a limit’ in reaction to this striking hike in prices. And with good reason it seems, as figures suggest that the Big Six providers have bunched their standard variable tariffs just £4 below the price cap. This certainly reduces the opportunity for finding a good deal through switching.
Raising the cap
After only 1 month of the price cap being in effect, Ofgem announced they would be raising it. From April 2019 the new cap will come into force and all of the Big Six have announced they will be raising their energy prices in accordance with this. Some have claimed that this increase has been an embarrassment for the government and may be a sign that the price cap is failing. However, Ofgem has insisted that the change is due to the rising wholesale cost of energy.
Is switching still worth it?
First things first, do not rely on the energy price cap to protect you from high bills. It is designed to protect those on standard tariffs, and unless you have not switched for a long time you will not benefit from it. Criticisms argue that people feel protected by the cap and decide not to switch because of it. Do not let this be you or any vulnerable person in your life. Switching to a better deal is still possible, and definitely the preferable option.
However, the loss of cheap deals is definitely limiting the benefits of switching. In December Which? found that the number of energy deals costing less than £1,000 a year for medium users had dropped from 77 in January to eight. It went on to find that on Monday, February 4, there were just six. Therefore the options for cheaper tariffs are more limited than before. The Guardian believes that before the price cap came into effect those on the cheapest tariffs were saving up to £400. Now, this has dropped to £160. Therefore, although the savings may be smaller than before, they do exist.
Keep switching it up
These are difficult times for the energy market. Over the past year, 10 smaller providers have collapsed and 2019 is already promising to be a dramatic year for energy companies. The best advice we can give you here at YouGen is to keep a regular eye on the market, and switch to a better deal when you can. Some of the cheapest offers may have been axed, but you still must not rely on the price cap to offer you the best deal or protect you from high energy bills. Make your move before the new price cap comes in later this year- the amount you can save has gone down, but it is still worthwhile to save what you can on bills.
If you have a question about anything in the above blog, please ask it in the comments section below.
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