Energy price cap hike: many households underestimate impending increases

Changing your energy habits and getting your finances into better shape will mean that the coming energy bill increases are less painful.

There are few bigger concerns for households across the country at the moment than energy bills.

Many of us are now subject to the energy price cap, and although we have already seen a big increase once this year, a second large hike is almost upon us.

However, while almost everyone knows that energy bills will be rising, it seems that significant numbers remain in the dark over just how large the increase is likely to be.

Underestimating energy bill increases

A new study this week from uSwitch found that on average households expect the price cap to increase by less than £500 when it is announced next week.

An incredible one in 10 (12%) reckon it will actually be decreased.

The reality is rather different.

Ofgem, the energy regulator which sets the cap, has warned that the increase will be substantial, with energy industry experts forecasting it will likely move from its current £1,971 to more than £3,500 ‒ a jump of over £1,500.

This isn’t just naive, it’s potentially really damaging to your finances.

If you aren’t prepared for the massive jumps coming to our energy bills ‒ and they are coming ‒ then those hikes are going to hurt even more.

By contrast, waking up to the reality of those increases at least gives you the ability to do something about it.

How long do I have?

It’s worth remembering that while the price cap increase will be announced at the end of August, the increase won’t actually kick in until October.

That’s not a lot of time, admittedly, but it is a window of opportunity to make some changes which could help you cope financially with the energy price cap hike, no matter how big it may be.

Getting into better habits

The first thing you can do is consider your own energy use. Are there ways that you can adapt your usage habits now, while our energy needs are relatively low, which you can continue once the nights turn cold and we are more likely to need to use energy?

For example, you could try to get into the habit of turning appliances off entirely, rather than leaving them on standby.

There are plenty of gadgets that waste valuable energy ‒ and with it money ‒ if they aren’t being turned off properly, like TVs, phone chargers and even the microwave.

Similarly, given the fact that the lights will be on more once the weather turns, you might want to move now to install energy-saving lightbulbs across your house or to make energy efficiency improvements, like getting a draught excluder.

If your boiler is getting old, then it may be worth looking at replacing it. Yes, this will be a large outlay initially but older boilers end up using more energy to heat your home as they are not as efficient, resulting in larger bills.

Even things like being a bit stricter over how much water you put in the kettle when making a cup of tea can have an impact.

Check out our guide to cutting your energy usage.

Building up a buffer

Of course, the reality is that there’s only so much you can do which will directly affect your energy use, and therefore the size of your energy bills.

But you can take action on other areas of your finances, which will leave you in a better position to deal with the cap increase.

This can start with the money coming in. Is now the time to ask your boss for a payrise?

Wages are increasing according to the Office for National Statistics ‒ albeit those increases are failing to keep pace with the rate of inflation ‒ and the consensus among employment experts seems to be that now is a great time to ask for more money. 

After all, businesses across all sorts of industries are having real trouble recruiting, so are more likely to pay you more in order to avoid having to replace you.

How to get a pay rise

If that’s not an option, then you may want to look into side hustles.

That doesn’t have to be anything as dramatic as taking on a second job ‒ you could simply rent out your spare space, or hold a boot sale to shift some of your unwanted possessions.

It’s also a good idea to look into pocketing a switching bonus by moving bank accounts or making the use of cashback websites when shopping online in order to bring in some extra money.

It won’t be life-changing amounts, but it could make a difference when those bigger energy bills kick in.

Reducing your spending

Alongside increasing the money you’re bringing in each month, it’s also important to identify ways to cut the amount being spent.

This isn’t easy given the rampant inflation we’re suffering with at the moment, where the price of virtually everything is on the rise. But by going through your finances carefully, you may be able to identify areas where savings can be made.

That could mean shifting to a cheaper broadband deal, switching your mobile phone tariff, or remortgaging to a new home loan.

That last option is especially worth considering at the moment, with the Base Rate having risen a handful of times this year already ‒ the interest rates on mortgages are only going to go one way for the foreseeable future, so nabbing a new rate now makes sense.