To Cap or Not... more info and central discussion

As always, when there's a big MoneySaving issues and I'm making a call on something.

I know there's lots of discussion around the forums, so I wanted to try and put it all in one place, and set my 'capping' stall out in a little more detail... though do also read the Cheap Energy guide and this weeks tip for a full explanation

Why cap

This is explained in detail in the article and the guide.... in a nutshell the answer is "cap now to lock in at current prices as prices are very strongly predicted to rise by up to 60% by the end of the year".

The industry, including british gas have deliberately signalled in reports that energy prices are going up to "maintain current margins" a report by Centrica two weeks ago predicted 60% price rises. This info is backed up by all the relevant analysts and comparison sites and energywatch and concerns of Ofcom.

The point is simple energy prices need to go up that much to maintain profits due to the wholesale gas price rise. I don't say this to justify it, its outrageous these companies make record profits at such times, but we can't ignore that it is happening.

The maths...

We are expecting price rises this month of c. 20% (EDF has already gone up 17% for gas 22% for elec - the others are VERY likely to follow).

For the vast majority of people,capping now will mean they save as soon as the caps in place. If you're switching supplier it takes 2 months to happen, so you won't be paying the cap price until then and by then most or all of the big six providers are likely to have put prices up.

A rise of 20% is enough for most people to be much better off capping than not capping - only the very few who were on the ultimate cheapest tariffs won't gain by this (and even then they may not lose, just be on roughly the same).

Yet the VERY strong predictions from the industry, energywatch and analysts is there will then be ANOTHER round of price rises in January (not in Decemebr as its bad PR for energy companies to put prices up pre-Christmas).

At that point, if it happens (and it is always if), those who cap now will be paying 20% - 40% less than those who stick with the cheapest tariffs.

If that doesn't happen the vast majority (c. 98%) will still have saved money anyway and a couple of percent will have not saved or at worse been costed a negligible amount.


Now to reply to some of the, shall we say less polite comments...

A. Do I know what I'm talking about?

Its my job to make a call on this scenario. Three months ago I predicted the cheap caps would disappear, all of the cheapest then have gone. Two months ago i said "last chance on the remaining cheap one" it went two days later.

A month ago someone on this forum said I was talking nonesense about energy price rises, I said "I will put £1,000 to charity that one of the major suppliers puts prices up by more than 5% by the end of July" - EDF put its prices up 22% last week.

Over the weekend I put an email out saying cheapest caps going - cap quickly. Yesterday the Scottish Power cheap cap was pulled from the comparison services.

I dont pretend I can always get it right, but I do my best to tell people how to save money and have to make judgement calls. So far on this one its going well. It has to be said Im not the only one saying to cap - all (as far as i know) the comparison sites and switching analysts are in agreement... perhaps I'm just the loudest.

For those who watched on GM-TV, this is a complex issue and I have 3 minutes to explain it, sometimes i make it clear (i think yesteday I did it well) and sometimes the nature of it means its not so clear (i was annoyed with the way I explained it this morning). That's why I go to such effort to explain it on the site in a way I hope people understand.

B. Aren't I "playing into the energy companies hands".

I find this a very strange deduction.

Certainly when I did a note two months ago warning that the "cheapest energy cap was due to end and grab it quick", I got feedback that the energy company were not happy and it'd cost them a fortune with all the people going to them.

Self evidentally the reason they're getting rid of the cheap caps now is because they're not economical and with price rises coming, people capping now at cheap prices means they will lose money. If they were economical then they would keep selling them.

C. I do this for vested interest reasons.

Thankfully its just two people, who've said something this insulting, amount the 10,000s reading the nergy guides now. I have done my job and run this site for a long time, and ALWAYS consider what I believe to be the best way to save money.

The links to the comparison services are affiliate links (as explained in how this site is financed which is linked on every page), yet that has never impacted the recommendation.

First of all, when these two caps go, as I've done preivously i will switch the traffic light to 'DONT SWITCH' as then its time to wait until all the price rises have happened. This is not exactly the action of someone desperate to get people to switch and certainly not something you'll see the comparison sites do.

You will also note while the comparison sites have dropped the Scottish Power cap, its linked directly from the article (with no affiliate)

And finally if i were after pushing switches as my priority - a capping is a nightmare, once people cap they stick on that tariff until it ends. The opposite of what anyone interested in churning switching wants.

I can't expect everyone to agree with me, that's my judgement call, but I present the information factualy, and give my opinion, and I would hope that is respected.

I hope this clears things up.

Martin