Martin Lewis warns of 'catastrophic' situation as people face devastating choice

Martin Lewis has warned of a “catastrophic” situation facing many as energy bills rise in the country.

The consumer champion warned that many people will be forced to make the devastating choice between heating and eating as energy bills rise, and said intervention was needed to help consumers.

Soaring wholesale gas prices are putting an upward pressure on energy bills.

READ MORE: How the energy crisis may affect your winter bills and leave you struggling to buy meat, beer and frozen foods

The surge comes as households face a range of financial pressures, with some still reeling from wage cuts or freezes during the coronavirus pandemic and also with imminent cuts to Universal Credit and the ending of the furlough scheme.

The founder of MoneySavingExpert.com warned that some people who have previously fixed into cheap energy deals may see their bills surge by as much as 40% when they come off them.

Mr Lewis told PA: “The situation is catastrophic, in a way we have never seen before.”

Regulator Ofgem regularly sets an energy price cap, which acts as a “backstop” protection for customers on default tariffs and takes into account the underlying costs to supply energy.

From October 1 the price cap will increase to £1,277.

Mr Lewis said it should be remembered that the price cap is based on typical use, so those who use more energy pay more.

He said the cap was based on prices in the run-up to August.

Mr Lewis continued: “Prices have exploded since then, again. So the price cap will change in six months.”

Mr Lewis suggested that, based on the “current run-rate”, the price cap from April 1 may potentially be as much as over £1,500 a year, based on typical usage.

He continued: “As I never thought I would say, one option is prices have gone up so much the price cap is now not a bad deal for the next six months and you get six months of protection.

“But you could bide your time and cross your fingers and wait and just go onto the price cap when your current deal finishes… because it cannot go up until April 1.

“The second option is to try and lock into a one or two-year fixed rate.

“Now, there are still a couple of tariffs out there where you can lock in for a year or two years at below what the price cap will be on October 1.

“They offer protection if things do not get better.

“Everybody needs to understand you will be paying more for your energy.

“This is not a question of saving money, this is a question of reducing the rise.”

© PA Martin Lewis

Mr Lewis stressed that households need to make sure that they are able to see the options available across the whole of the market when comparing energy deals.

MoneySavingExpert.com has a Cheap Energy Club which helps people to find deals to suit their needs from across the whole of the market.

Mr Lewis continued: “If you’ve been on a cheap fix and you’re coming off a cheap fix, you could very easily be paying 40% more on your energy bills, even if you do what I’m saying to reduce the rate going up.”

He warned: “There will be many people making the devastating choice between heating and eating.

“The Government is talking about intervening with energy companies, it needs to intervene with consumers as well.”

There are also fears that more small energy suppliers could go bust.

According to Ofgem’s website, in situations where an energy firm does go bust, it will protect any credit balance customers have, as well as their supply.

An Ofgem spokesperson said: “We know that the current situation with high wholesale energy prices is putting pressure on customers and energy companies. This is a global issue. We have the systems and processes in place to ensure that customer needs are always met.

“For those customers who are with energy companies that can no longer trade, a new supplier will be appointed. Ofgem is working closely with Government to manage the wider implications of the global gas price increase.”

Sarah Coles, a personal finance analyst at Hargreaves Lansdown, told PA: “The rise in energy prices is set to put the squeeze on people, who are already seeing the price of everything from petrol to food shoot up.

“For anyone with a fixed tariff this isn’t going to be an immediate problem, but when your deal comes to an end you could face a horrible jump in your costs.

“For those who are with smaller energy companies that have gone bust, then there’s every chance the deal the regulator switches you to with a new company won’t be so cost-effective.”

Ms Coles added that motorists may want to try comparing prices on website petrolprices.com.

She said: “It pays to think carefully how you use the car and whether you can cut down on unnecessary trips.”

For households trying to make savings more widely, Ms Coles suggested: “One way to keep an eye on the cost of the things you buy regularly in the supermarket is to keep a receipt and take it to the supermarket with you.

“That way, you can quickly check to see whether the price has changed, and if it has, you can look for cheaper alternatives.”

Lisa Barber, Which? home products and services editor, said: “Deals at the level of the price cap may soon be among the best available – but there is a risk that, if the crisis continues, anyone who stays on a standard variable tariff could see another substantial price hike after the cap is reassessed early next year.

“Anyone wanting to switch their energy deal, for example those on a standard variable tariff, may want to switch now to ensure they have some stability for the year ahead, as it is still possible to find competitively priced fixed rate deals.”

Business Secretary Kwasi Kwarteng held a crisis meeting with the energy industry before announcing to the Commons that ministers would not be bailing out energy firms and that the energy price cap would be “staying”.

In a joint statement issued late on Monday evening, Mr Kwarteng and Ofgem chief executive Jonathan Brearley confirmed they had taken a unified position over the price ceiling continuing.

Addressing MPs, Mr Kwarteng said there needed to be an acceptance that gas prices “could be high for longer than people anticipate”.

But he called fears of a three-day working week “alarmist”, adding: “There is absolutely no question of the lights going out or people being unable to heat their homes.”

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