Energy bills to go up by 80% - should you switch to a fixed-price energy tariff?

With energy prices due to rise by 80% in October, we look at whether it's worth switching to a fixed deal and what to do next

Close-up of energy bills and Smart Meter on a kitchen worktop
(Image credit: getty images)

Following the announcement of the new prime minister and the rumoured plans around help with energy bills, we do not think you should take any action until we know more. We  will update this article as soon as we now more about help with energy bills.

Energy prices are set to shoot up to £3,549 in October, with the average household facing an annual increase of £1,578 (80% increase) a year for gas and electricity, based on typical use, following the latest energy price cap announcement.

The new cap will apply to your energy bill if you are on a default or variable tariff from 1 October to 31 December. In January, a new price cap will kick in and could see yet another rise in prices.

In fact, analysts expect high energy prices to continue well into 2023 and 2024. 

According to previous estimates from analysts at Cornwall Insight (opens in new tab), average prices could jump to £4,649 in January, when another price cap is set. But this is just an estimate, we do not yet know what the January price cap will be. The January 2023 price cap will be in force from 1 January to 31 March. 

With this in mind, you may be thinking about fixing your energy if you are offered a fixed rate tariff from your supplier. 

We explore whether it is worth thinking about fixing your energy if you are on a variable tariff and what your options are.

We’ve crunched the numbers to find out whether you should fix your energy tariff to beat the price hike - and whether there are any good deals on the market right now.

SHOULD I FIX NOW TO BEAT THE RISE?

If you are on your provider's standard variable tariff and get offered a fixed-rate deal, it could be worth locking in the rate before the October price cap kicks in - and to get ahead of any increases in January.

But, it all depends how much higher the fixed-rate deal is than the current price cap.

We’ve crunched the numbers to work out that if you can get a fixed rate no more than 120% higher than what you currently pay, then it's worth considering.

This may be a hard number to digest, but our calculations show that if you do nothing and stick to the price cap rates then you will pay on average £295.65 per month until the end of December - as set by today’s price cap announcement. The actual amount you pay will depend on how much energy you use.

But then, in January, when the cap is recalculated, forecasts suggest prices will rise by around 30% meaning you could pay around £384 per month, based on average typical use. The cap will then be set again for April, and forecasts suggest you will pay another 14% more, meaning your average typical bill could be around £438 a month. It is therefore estimated that your annual bill between September 2022 and August 2023 could be £4,395.

However, if your provider was to offer you a fixed deal that was around 120% above the current cap rate, then your annual bill could be £4,336, which is £58 less over the year compared to if you did nothing and stayed on your variable tariff. So, anything below 120% is worth considering. 

But, it is worth noting that the figures are based on forecasts for the period of January 2023 onwards and we do not know what the prices will be. But analysts have said that they expect prices to remain high during 2023 and 2024 and possibly beyond that.

If you think prices will increase again next year, and you’re the sort of person that likes the security of having a fixed deal, you could consider switching to a fixed rate that is up to 120% higher than the current price cap. 

Guy Anker, The Money Edit director, says: “Fixing isn’t for everyone, so think carefully before you make your decision. It’s all about your attitude to risk and only you can make the decision. Whatever you choose, you are gambling to some extent as there are no certainties in this period of wild economic and political whirlwinds. 

“Hopefully our analysis can help you understand the possibilities and risks.”

Though we can’t be sure how energy prices will change in the future, our analysis below shows that by fixing now, your bills will go up, but over the course of the year you could save money or break even if energy prices do continue to rise as forecasts suggest. But we can’t be certain what will happen with prices. 

To help illustrate the potential savings by fixing now, we analysed the average prices, based on typical use, you could pay per month depending on what fixed-rate deal you’re offered. 

If you do nothing, then based on the average cap rate, the cost is around £164 per month for September and then around £298.50 per month (based on average typical use) when the October price cap kicks in. We have also used forecasts that suggest the prices will go up by another 30% in January and then another 14% in April 2023.

That’s an estimated annual payment of £4395 between September 2022 and August 2023 if predictions come true.

  • If you fix at 60% above the cap, then you could pay £263 a month based on average typical use, costing £3,154 between September 2022 and August 2023. This is cheaper than doing nothing and staying on your current tariff. Again, this assumes the latest forecasts for the October price cap are correct.
  • If you fix at 65% above the cap, then you could pay £271 based on average typical use, costing £3,252 between September 2022 and August 2023. This annual bill is slightly cheaper (£61 cheaper over the year) than if you did nothing and didn’t switch. Again, this assumes the October price cap prediction is correct, and that the price cap doesn’t change again next year. 
  • If you fix at 120% above the cap, then you could pay £361 a month based on average typical use, costing £4,336 between September 2022 and August 2023. This annual bill is slightly cheaper (£58 cheaper over the year) than if you did nothing and didn’t switch.
  • If you fix at 125% above the cap, then you could pay £270 based on average typical use, costing £4,435 between September 2022 and August 2023. This is £40 more expensive over the year, compared to doing nothing and staying on your current variable tariff.

We don’t advise fixing on a rate that is more than 120% higher than your current deal.

Whether you decide to fix or not is essentially a ‘gamble’ and you should consider your attitude to risk before you go ahead with locking in any fixed rate, especially as we don't know where energy prices will be in 2023. 

This information only applies if you are on a standard variable tariff; if you are already on a fixed-rate tariff then you are most likely already on a good deal.

HOW CAN I GET A FIXED-RATE ENERGY DEAL? 

A handful of providers have previously offered decent fixed-rate deals to existing customers who are on a standard variable tariff or coming to the end of their fixed-rate deal. These offers come and go fast - so if you spot one and you want it, act quickly. Here are some deals we have found so far.

E.On Next Online v19 (opens in new tab) - open to existing customers

  • One-year fixed tariff
  • Will cost the typical household £3,407 a year ‒ 73% more than the current energy price cap and around 4% more than the new October price cap.
  • No exit fees
  • Available to all existing customers

There is one other deal that could be worth considering - but there is a catch. Available to both new and existing customers, Utility Warehouse’s Green Fixed 34 tariff is a one-year fix that is 80% more than the current price cap and in line with the new October price cap.

But, you also need to sign up to two other services from Utility Warehouse, such as broadband, Sim-only contract or boiler and home cover. This may not make financial sense for you, especially if you are locked into other deals. Think carefully before making this switch. If you are able to make the switch and take on two other products which offer you good value, then it is worth considering. 

If you don’t want to take any of those deals, and your existing supplier doesn’t have a decent offer at the moment, keep an eye out for future offers, and apply the 120% rule: if it’s more than 120% higher than the current price cap, it might not be worth switching to. 

Keep on eye on our article on the best gas and electricity deals too for updates on deals.

Want more?

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Kalpana Fitzpatrick
Digital Editor, Money Week

Kalpana is the Digital Editor of Money Week.

She’s an award-winning journalist and author with extensive experience in financial journalism. Her work includes writing for a number of media outlets,  including national papers and well-known women’s lifestyle and luxury titles, where she was finance editor for Cosmopolitan, Good Housekeeping, Red and Prima.

She is the author of Invest Now: The Simple Guide to Boosting Your Finances (opens in new tab) - out December 2022.

She started her career at the Financial Times group, covering pensions and investments.

As a money expert, Kalpana is a regular guest on TV and radio; appearances include BBC One’s Morning Live,  ITV’s Eat Well, Save Well, Sky News and more. 

She was also the resident money expert for the BBC Money 101 podcast and co-author of the e-careers personal finance course.

A well-known money and consumer journalist, Kalpana also often speaks at events.

She is passionate about helping people be better with their money, save more and be smarter spenders.

Follow her on Twitter and Instagram @KalpanaFitz.

With contributions from