Energy bills can be really confusing, but we’re here to help break it down.
Bill Confusion
In a Which? survey in 2022, 2 in 5 adults identified areas of an energy bill that they found confusing, with 13% of customers reporting that they had to contact their providers to seek clarification or help with queries relating to bills, direct debit, or credit balances they had received.
47% of customers reported feeling stressed, and 49% anxious, when faced with their energy bills.
This highlights how many of us struggle to understand the nitty-gritty of our energy bills, and how this can have an emotional (as well as financial!) impact.
Key Terms
To gain a proper understanding of our energy bills, we need to understand the terms that are often used.
Tariff – the deal on offer from an energy company which sets out how much you pay and how long for. There are two main types of tariff: fixed and variable
Credit – where you have paid more than enough into your account with your energy supplier to cover your energy costs
Debit – where you have not paid enough to cover your energy costs and so owe your supplier money for the energy you have used
kWh – Kilowatt Hour – a measure of how much energy you are using per hour
Standing charge – a daily fee charged by your energy provider for being connected to the gas grid or electricity network. You pay this regardless of how much energy you use
Unit rate – the price for each unit of gas or electricity you use. This is calculated as pence per kilowatt hour
Wholesale costs – the price that energy suppliers buy energy at. This makes up the largest component of your bill, with suppliers then adding other operational costs before arriving at a price which is charged to you as the customer
Customer number – a unique number given to you by your energy supplier to help them identify you. Make sure to make a note of this in case you need to access your online account or contact your supplier
Energy Price Cap – a cap on how much energy suppliers can pay you for each unit of energy you use if you’re on a standard variable tariff in England Scotland or Wales. This is calculated every three months, with changes mainly based on wholesale energy costs. For more info on the Energy Price Cap, click here.
Fixed vs Variable
With variable tariffs (also referred to as ‘standard’ or ‘default’ tariffs), the unit price and standing charge can go up or down. You can usually leave a variable rate contract when you want without facing any fees for doing so.
With fixed rate tariffs, your unit rate and standing charge remains fixed. These tariffs usually last for a set period of time, such as 12 or 24 months. If the wholesale price of energy changes you will still pay the rate you agreed upon with the supplier for the remainder of your contract. So if wholesale prices go up, you could end up paying less on a fixed rate tariff, and if they go down, you could end up paying more than you need to.
When Receiving Your Energy Bill, Check…
That your name and address is correct
The billing period doesn’t cover time before or after you lived at the property
The meter serial numbers (MSN), meter point administration numbers (MPAN), and meter point registration numbers (MPRN) are the same as those on your gas and electricity numbers.
by Red Star Wealth
Ofgem has released their new Energy Price Cap, which will see the typical energy bill fall by £238 a year from 1st April, with a 12.3% cut to the price cap.
Does the Energy Price Cap Apply to Me?
Every three months, Ofgem reviews and sets a new level on how much energy suppliers can charge for each unit of energy for those on a standard variable tariff in England, Scotland or Wales.
The price cap will apply to you if you’re on a default energy tariff. The price cap is not the maximum amount that anyone can be charged for energy, because what you pay will also be determined by where you live, how you pay your bill, and the type of meter you have.
Instead of acting as a maximum bill, the price cap represents an average bill by limiting the amount you pay per unit of gas and electricity, along with a maximum daily standing charge.
The daily standing charge is what you pay in order to stay connected to the grid to access energy, even if you don’t use it.
How is the Price Cap Calculated?
The Energy Price Cap changes every three months, with changes mainly based on the costs that energy suppliers face (mostly wholesale energy costs).
The price cap is based on typical household energy use, calculated by looking at the average amount of gas and electricity used by households across England, Scotland and Wales.
“We estimate that the medium usage figure is about the same amount of energy used by a household with 2-to-3-bedrooms and where 2 to 3 people live” – Ofgem
The Latest Energy Price Cap
Cornwall Insight predicted the cap to fall by 14% to £1,656 per year for a typical dual fuel household.
The fall has not been quite as large as predicted, but is still a significant drop of 12.3%, meaning the typical annual energy bill for those on standard variable tariffs will fall to £1,690 from April.
Cornwall Insight has further forecasted that the cap will continue to decline in July before rising by a small amount in October.
Martin Lewis on Prepay Standing Charges
Martin Lewis has stated that for typical users, prepay unit rates will be about 3% cheaper.
“Prepay, which many of the vulnerable use, was always the rip off, so this is a staggering turn around. And this is unlikely to be a flash in the pan – this pricing structure is likely to continue for the foreseeable future. (To be fair, even on the current Price Cap prepay is fractionally cheaper, but that is due to a small Government subsidy. On 1st April the gap will grow, and all due to real pricing).” – Martin Lewis, Money Saving Expert
He predicts that direct debit will remain the overall cheapest option for anyone making a switch, but for those already on a prepay deal, this will be the cheapest option.
If you are unsure what type of tariff you’re on, you can contact your energy provider to find out. Alternatively, you can check your energy bill or online energy account if you have one.
by Red Star Wealth
Nationwide have recently introduced an interest-free loan for homeowners seeking to make green energy improvements to their properties, which will be available from 1st June.
Nationwide’s Green Additional Borrowing Mortgage
With Nationwide’s new product, borrowers will be able to take out loans of £5,000 to £15,000 with a 0% interest rate, fixed for 2 or 5 years. After this time period is up, the interest will rise to Nationwide’s variable standard mortgage rate for the remainder of the mortgage term.
To qualify, borrowers must be an existing member with Nationwide mortgage and spend at least 50% of the advance on non-structural energy efficient home improvements. The listed examples by Nationwide include:
Solar panels
Air source heat pumps
Cavity wall insulation
Double glazing/replacement windows
Electric car charging point
Ground source heat pumps
Loft insulation
Small scale wind turbine
Borrowers will be able to borrow up to 90% loan-to-value, meaning they will have to fund at least 10% of the improvement costs themselves.
A Step in the Right Direction
This move by Nationwide will help to reduce the initial cost burden of green home improvements on the individual, helping to encourage sustainable living practices and energy efficient improvements.
According to Government research in 2021, around 20% of carbon emissions came from homes. Therefore, focussing on making homes greener is a significant step towards creating a more sustainable future.
According to the Greener Homes Attitude Tracker, commissioned by NatWest, cost acts as the biggest barrier to sustainable home improvements:
“According to the latest data, the cost of the work required was by far the greatest barrier, cited by 71% homeowners not planning sustainable home improvements in the next 10 years”
Even if it saves them money on their energy bills in the long-run, many homeowners simply don’t have the money spare to pay for changes upfront in one lump sum. Therefore, monetary barriers act as a huge barrier to ordinary people ‘going green’. Nationwide’s new product is a great example of how to help people become more sustainable, as it allows them to make that initial cost.
Nationwide’s Other Green Initiatives
This new product is not the only move by Nationwide to go greener. They also have a Green Reward offer where you can get cashback when buying an energy efficient home.
With this, you can claim £500 cashback when buying a property with an Energy Performance Certificate score of 92 or above, or £250 if the property has a score of 86 to 91.
Overall, we need to keep pushing towards a more sustainable future, and any and every step that allows us to do that is a cause for celebration.
by Red Star Wealth
Let’s have a look at some of the key changes announced in Jeremy Hunt’s Spring Budget earlier today.
Pensions
Hunt announced that the pensions lifetime allowance was to be abolished, meaning more people can save unlimited amounts into their private pension without incurring a tax charge.
He also announced an increase in the tax-free yearly allowance for pension contributions, taking it from £40,000 a year to £60,000 a year.
Fuel, Alcohol and Tobacco
The 5 pence cut to fuel duty on petrol and diesel was due to end in April but Hunt has announced a freeze of fuel duty for another year, helping keep down costs for motorists.
Tax on tobacco is set to rise by 2% above the rate of inflation, or for rolling tobacco, 6% above inflation.
Most alcohol duties will be rising in line with inflation as of August, meaning supermarket prices for booze will increase. However, Hunt has also mentioned a draught relief scheme to be implemented from August 2023 which should keep pint prices in pubs down.
Energy
Energy bills for the typical British household were due to rise to £3,000 a year from April but the energy price guarantee has now been extended until the end of June, keeping this figure at £2,500 instead.
Hunt has that the government will invest £20 billion over the next 2 decades into low carbon energy projects.
Nuclear energy will now be classed as environmentally friendly for investment purposes, meaning it will qualify for the same investment incentives as renewable energy.
Hunt has also stated that £63 million will be given to leisure centres to help them cope with rising swimming pool heating costs and investment to become more energy efficient.
Childcare
One of the main highlights of the budget is the expansion in state-funded childcare. Hunt has promised up to 30 hours a week of free childcare for eligible households with children as young as 9 months. This won’t be fully implemented until September 2025 but will be rolled out in stages from April 2024.
Families on universal credit are set to receive childcare up front rather than in arrears. Instead of a cap of £646 per month per child, this will now be increased to a maximum of £951.
Hunt has further announced relaxed rules in England to allow childminders to look after more children.
He’s also increasing the funding paid to nurseries providing free childcare by £204 million from September this year, rising to £288 million next year.
Corporation Tax
Corporation tax will indeed be increasing, taking it from a 19% tax on taxable profits over £250,000, to a 25% tax. However, Hunt has also announced a new policy of full capital expensing over the next 3 years which will allow companies to deduct money invested into new machinery and technology from their profits, helping to reduce their tax liability.
Support for the Vulnerable
Hunt has announced a new system of Universal Support across England and Wales. This is a new voluntary employment scheme for those who are disabled or have health conditions. Up to £4,000 per person will be invested to help support around 50,000 people a year in finding suitable work which caters to their needs.
Hunt has also announced funding of:
£400 million for mental health and skeletal support
£3 million to help those with special needs to enter the workforce
An additional £10 million over the next 2 years to help charities in England who work in suicide prevention
Other Notable Points
-£200 million this year to help local councils in England repair potholes
An extra £11 million in defence budget funding over the next 5 years
by Red Star Wealth
Smart meters are becoming increasingly popular, with 54% of all meters in Great Britain recorded as smart or advanced meters at the end of September 2022. Let’s have a look at the pros and cons of smart meters so that you can decide what’s best for your household.
What are Smart Meters?
Smart meters record your consumption of gas and electricity so that it’s easier to monitor your energy usage. It shows you how much energy you are using and what this is costing you on an in-home display. It also sends meter readings to your energy supplier automatically.
Pros of Smart Meters
It’s easy to track your energy usage so that you can make changes to save yourself money on your utility bills. You can clearly see how different appliances affect the cost of your bill, which can help you make informed decisions about what to cut down on
If you do choose to reduce your consumption of gas and electricity due to your smart meter, this also has a positive environmental impact. Smart meters encourage sustainability, both in terms of your finances and the environment
Your meter reading is automatically sent to your energy provider, meaning you don’t have to do it manually. Not only does this save time and effort, but it also gets rid of the need for estimated bills so that you are only charged what you actually use
The in-home display is easy to understand because it translates your energy usage in terms of the money it’s costing you
Many suppliers are now offering discounts and cheaper tariffs for those with smart meters, so it’s likely that you can get a good deal
Cons of Smart Meters
First generation smart meters use a mobile network signal to send data back to your energy supplier. This means that if you have any issues with the signal in your area, it affects your smart meter’s ability to send this information to the supplier
Smart meters don’t automatically equate to saving money. They simply help you monitor you energy use and choose whether you want to cut back on certain things based on the information you have. The meter in isolation does not reduce the cost of your monthly bill
You might find it stressful seeing the meter constantly go up every time you switch on the oven or boil the kettle
If you have a first generation smart meter and switch providers, it may lose its smart functionality, meaning it keeps recording your usage but can no longer automatically send the readings to your new provider
Check out our previous blog where we discuss the forced installation of prepayment meters to people’s homes in the UK.
by Red Star Wealth
Citizens Advice has called for a ban on customers being forced onto prepayment meters by energy companies until new protections are brought into force.
What are Prepayment Meters?
Often referred to as ‘pay-as-you-go’ meters, prepayment meters are when users have to pay for their energy before using it. They mean that you can pay small amounts often to top up your energy, but they often work out as more expensive than a direct debit deal.
Users buy credit for their meter from a top up point (often found in a local shop or Post Office) which transfers money onto a card or key. Alternatively, they can top up online via an application on their phone.
Consumers have to pay a daily fee called a ‘standing charge’. You also pay this with normal meters, but with a prepayment meter you need to ensure that you have sufficient credit to pay it. This charge comes out even when you use no gas or electricity.
What is the Issue?
Many UK adults are unable to afford their energy bills and so are being forced onto prepayment meters, but then they can’t afford to top up their credit on these either!
Source: Citizens Advice
In 2022 alone, Citizens Advice found that more people were unable to top up their prepayment meter than in the whole of the last 10 years combined. They also found that 3.2 million people across Great Britain were unable to afford to top up their prepayment meter and so ran out of credit. This equates to 1 person every 10 seconds having their energy supply cut off.
Know your Rights
If you think you can’t afford to top up your prepayment meter, you must contact your energy supplier. Ofgem rules stipulate that they must offer you emergency support.
This support includes:
Emergency credit if your meter runs out
Friendly hours credit if top up points are closed and your meter is running low
Extra support credit while you work out ways to pay if you are vulnerable
It’s also worth checking out Citizens Advice’s page on rules that your supplier has to follow with prepayment meters.
British Gas Makes a Step in the Right Direction
British Gas has now said that it will stop remotely switching people onto prepayment meters through their smart meters when they fail to make utility bill payments.Chris O’Shea, the boss of British Gas, also stated that they would be adding additional vulnerability checks. This certainly seems like a step in the right direction on the road to protecting vulnerable people from being left without heat or light.
This said, they have not committed to stopping forced installation of prepayment meters in person…
Join us next Friday for our blog discussing the pros and cons of Smart Meters…
