Time is right to set energy tariffs to avoid Labour’s winter fuel offensive, financial experts say

Energy bills are forecast to rise by 10 per cent in October, just as millions of people prepare for a harsh winter.

Around ten million retired households are facing the coldest months without the winter fuel allowance of up to £300 that previously helped them with their bills.

Chancellor Rachel Reeves withdrew the subsidy earlier this month. The subsidy will now be means-tested and only available to those in receipt of a pension credit.

Energy bills are capped at £1,568 for a typical household, under rules from regulator Ofgem.

But the new limit for October to December, to be announced on August 27, is expected to be higher.

Industry experts Cornwall Insight predict the limit will rise to £1,723 a year – an increase of £155 for a typical household.

Several energy companies offer fixed rates that allow households to lock in a guaranteed price for gas and electricity for a year or more.

This eliminates the uncertainty of waiting to see if bills increase in October and being subject to further price cap changes, which occur every quarter.

But will you save money by fixing your problem now? Or are you better off sticking with your variable tariff? Money Mail investigates.

How do fixed agreements work?

If you subscribe to a fixed rate, the price you pay per unit of energy will remain the same throughout the contract period, which is usually one or two years.

Often the daily fixed charge (covering administrative costs) will also remain.

This doesn’t mean you can use as much energy as you want without paying more, but it does mean you’ll be charged the same rate regardless of any changes in wholesale prices.

Should you fix it right now?

There is currently only one fixed-rate deal cheaper than the current price cap, according to comparison website Uswitch. It’s Outfox The Market, and it beats it by £4 a year.

However, there are ten deals that would allow you to save up to £159 compared to the price cap if it were to rise by 10 per cent in October.

These include fixed-term deals from Octopus Energy, Co-op Energy and British Gas.

A typical household with a three-bedroom property could pay £1,723 a year in variable tariffs for gas and electricity from the start of October if the cap is raised by 10 per cent.

With a 12-month fixed deal from Outfox The Market, the bill would be £1,564. With Octopus Energy and Co-op, it would be £1,599.

If prices continue to rise in January, when the October price cap is revised, booking one of these deals now will result in a nice saving.

However, if prices fall again, the savings could disappear.

Joe Malinowski, founder of energy pricing service The Energy Shop, says: ‘A typical household could save perhaps £100 in the first six months of a fixed-tariff deal compared with if they were still paying a variable tariff.

“But if prices fall after that period – and they could well do so – then all those savings could be lost.”

Predicting what will happen to energy bills in January and beyond is virtually impossible. It depends on the wholesale price, which is affected by global conflicts, energy policy and market forces.

Even experts have a hard time seeing that far into the future.

Therefore, the benefit of fixing something is more likely to be the certainty it brings rather than a guarantee of future savings.

As Malinowski says: “Fixed rates are suitable for those who want certainty rather than bargains. They are also attractive to those on a budget who want to know where every penny is going.”

Malinowski believes that after having increased by 10 percent in October, the limit price will remain practically stable until the beginning of the New Year, a period when demand for gas and electricity is traditionally high.

But the founder of The Energy Shop hopes that spring will bring a drop in prices.

Beware of the fine print

Some fixed-rate deals have fees for cancelling early, so think carefully before signing up. Ovo Energy has one of the highest rates, at £75 per fuel. This makes it costly to find a better rate if prices fall.

Also, beware of eye-watering headline figures before signing up for a service. For example, Ovo Energy has a 12-month “bundled tariff” for £1,531, but you also have to take out its boiler insurance – £180 a year even for “essential” cover.

There are several green energy deals that are more expensive than other alternatives. However, some households are willing to pay more to have energy from renewable sources. So Energy offers a 12-month fixed tariff for £1,727.

Locking in a longer term is often more expensive as energy companies want to make sure they are covered if costs rise in the long term. That’s why a 24-month fixed tariff from 100Green costs £1,946.

Don’t expect a cheap offer

Last month, Ofgem extended a ban on so-called takeover tariffs, which are cheaper deals designed to attract new customers and are not available to existing customers.

This means that gone are the days when people had to shop around every year to get a new deal or risk paying a lot more. But there is no point in waiting for a great new deal to come along.

t.walne@dailymail.co.uk