Fixed energy deals could be more expensive than variable

Energy companies will start to contact domestic customers within days about new energy tariffs - including information for those on fixed deals.

The government has said that many people on fixed deals will receive a discount equivalent to the support given to those on the price cap.

A relatively small number who chose to fix at an expensive rate - expecting energy prices to keep rising sharply - will still pay more than others.

New bills take effect on 1 October.

How the plan works

The government's Energy Price Guarantee, unveiled on Thursday, means that price rises will be limited for 24 million households in England, Wales and Scotland on variable domestic energy tariffs.

They would normally have their bills governed by regulator Ofgem's price cap - but the government's new two-year plan supersedes those arrangements.

It means the average unit price for dual fuel customers paying by direct debit will be limited to 34p per kilowatt hour (kWh) for electricity and 10.3p per kWh for gas.

• What the new energy plan means for you

• How much are energy bills rising under the new plan?

For a typical household - one that uses 12,000 kWh of gas a year, and 2,900 kWh of electricity a year - it means an annual bill will not rise above £2,500 from October. Without this intervention, that annual bill would have been £3,549 a year.

However, charities point out that many will still struggle because, last winter, the typical household paid £1,277 a year.

The total bill will still vary depending on a household's actual gas and electricity use, and their method of payment.

Some other households will receive the equivalent discount - but that does not mean their tariff will be exactly the same as those on capped variable deals.

Domestic customers may have chosen - before the announcement - to get ahead of price rises expected in the future by choosing a fixed tariff.

If that was more expensive than the new capped rate then the government has said these customers will receive the equivalent discount.

In precise terms, that is an automatic reduction in unit prices of 17p per kWh for electricity and 4.2p per kWh for gas - which is the equivalent of £1,000 or so for a household using a typical amount of gas and electricity.

That could still mean a household which chose an expensive fixed tariff pays more than those on a capped variable tariff - even after the discount.

They do not have an automatic right to cancel that fixed deal without a penalty charge, unless they signed up in the last 14 days.

The Department for Business, Energy and Industrial Strategy said switching was "ultimately a decision for individuals".

Providers will start to contact customers in the coming days to explain what the changes mean for their specific tariff and direct debit or prepayment charges.

A mechanism still needs to be developed to carry through the government's intention that households in Northern Ireland receive the same support.

Unlike households - where a unit price for gas and electricity has been used to generate a typical bill of £2,500 - there is no such mechanism for businesses, who have a huge variety of different contracts based on the intensity of their usage and the mix between gas and electricity.

Businesses still left in the dark

Businesses were promised "equivalent support" with energy costs by the prime minister last Thursday. No-one has any idea what that means.

The Department for Business, Energy and Industrial Strategy (BEIS) has told me that there is no detail to share on how support for business will be calculated and it is unlikely there will be any forthcoming this week.

Also, unlike households, there is no price cap for businesses and therefore no moment when everyone's bills will change. Firms typically have one or two-year fixed contracts but a significant number traditionally come up for renewal before winter in September and October.

As one business group insider told me: "No one knows anything and that is a huge problem for businesses."

However, BEIS said that meetings continue and the business of government goes on during the official mourning period.

That will be little comfort to the business owner we spoke to last week agonising over whether to hand back the keys to his premises ahead of this winter.

The PM and chancellor have written a blank cheque trying to avert a recession. Households' knowledge their bills are fixed for the next two years will help in that endeavour. But few businesses will invest, hire, sign a new lease etc until they know what help is coming their way and when.

If a recession is to be avoided, the government will need to provide more detail and reassurance as soon as possible.