Millions of households could end up paying far more for their energy this winter than they realise.
A common misunderstanding about how the price cap works is at the heart of the problem.
Ofgem confirmed this week that its energy price cap will increase by four per cent from October 1.
The change takes the typical annual dual-fuel bill from £1,663 to £1,723 for the quarter running to December 31.
Yet that figure does not represent a ceiling on what any individual household can be charged. The amount each customer actually pays is determined by their energy consumption, location, tariff type and payment method.
Molly Monks, an insolvency specialist at Parker Walsh, said: “Calling it a price cap can create the impression that nobody will pay more than £1,723, but there is no ceiling on the total bill.”
Ms Monks warned that relying on the headline number is a risky strategy.
She said: “The most expensive mistake is assuming the cap guarantees an affordable bill. Knowing your tariff, monitoring your usage and acting before winter gives you far more control than relying on the headline number.”
The cap restricts the unit rates and standing charges that suppliers can apply to default tariffs. It does not place any limit on a household’s total bill.
Ms Monks said: “The cap limits the rates suppliers can charge customers on default tariffs. A household that uses more energy will still pay more, which is why understanding the detail matters before winter arrives.”
With just over a month before the new rates take effect, there are five widely believed myths that could prove costly for consumers who fail to look beyond the headlines.
The first myth is that nobody will pay more than £1,723. The figure simply illustrates what a typical household paying by direct debit might spend over a year if the October rates stayed the same. It is not a fixed bill or an upper limit.
Ms Monks said: “A larger family in an inefficient home could pay considerably more. Treat the headline figure as a comparison tool, not a personal forecast.”
Energy bills have hit their highest level in three years | GETTY
The second myth is that every household will see its bill rise by exactly four per cent. Gas is driving most of the increase, with gas bills climbing by roughly eight per cent. Homes without a gas supply should see a rise of less than one per cent.
Electricity prices are staying broadly flat because VAT is being temporarily removed from domestic electricity bills.
Ms Monks explained: “A gas-heated home may feel the change more sharply than an electricity-only property. Your personal increase will depend on what energy you use and how much, not simply the four per cent headline.”
The third myth is that the new cap applies to every household. In reality, it primarily shields customers on default or standard variable tariffs. Around 11 million homes on fixed deals will not see their contractual rates altered as a result of the cap moving.
Ofgem confirmed this week that its energy price cap will increase by four per cent from October 1
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Ofgem has said the temporary removal of VAT on electricity will also be applied automatically to eligible customers on fixed tariffs.
Ms Monks said: “Check the name of your tariff and its end date before assuming the announcement affects you. If you are fixed, also check what happens when that deal expires, as you may otherwise roll onto a more expensive default tariff.”
The fourth myth is that a supplier cannot raise your direct debit above £144 a month. Dividing £1,723 by twelve gives roughly that amount, but suppliers can adjust payments based on predicted consumption, past usage, account balances and seasonal patterns.
Ms Monks said: “Ask the supplier to explain its calculation if your payment rises unexpectedly. Provide an up-to-date meter reading and check the usage estimate, but do not simply cancel your direct debit without speaking to them.”
The fifth myth is that there is nothing consumers can do until prices change. Ofgem says fixed tariffs are currently available at more than £100 below the October cap, though not every deal will suit every household.
Ofgem has made its latest energy price cap announcement | GETTY
Consumers should compare unit rates, standing charges, contract lengths and exit fees rather than relying on a single advertised saving.
Ms Monks said: “Use your actual consumption when comparing tariffs and photograph or submit a meter reading around September 30. That creates a clear record of what was used before the new rates began.”
She also urged anyone already finding bills difficult to get in touch with their supplier sooner rather than later.
Ms Monks said: “If you are already struggling, contact your supplier before arrears build up. Suppliers are required to work with customers experiencing payment difficulties and may be able to agree an affordable repayment plan.”