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Energy price cap freeze on a fixed tariff

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  • MattMattMattUK
    MattMattMattUK Posts: 11,171 Forumite
    10,000 Posts Fourth Anniversary Name Dropper
    edited 5 September 2022 at 10:50PM
    If Russia follows through with today's threat to keep gas supplies off until sanctions are lifted then winter blackouts are all but guaranteed without a reduction in consumption. Pretty much the only viable lever there is price so whilst people would be asked to voluntarily reduce consumption, especially at peak times, the reality may well be that rolling blackouts would be likely needed for all but the mildest of winters. The reality is that for the vast majority a daily scheduled 2-4 hour blackout would be nothing but a mild irritation, but could be key to maintaining wider continuity of supply.
  • jak22
    jak22 Posts: 400 Forumite
    100 Posts Second Anniversary
    edited 5 September 2022 at 11:02PM
    sienew said:
    jak22 said:
    If the scheme is a loan then the whether its applied to reduce the unit rate or as a cash amount and by how much and its duration could be up to each energy company as they're going to have be able to pay it back eventually. That cash still has to be found by the govt initially so its not really very likely the govt will add £400 per person as well - and anyway it was a scheme of the previous administration.

    A unit price subsidy wont apply to fixed contracts but - as long as someone with influence stands up and mentions it - maybe there could be a cash amount for fixed deals over the April cap given that the £400 had been promised and was a factor when people chose a fix. 
    I think people are under estimating how much energy companies might want people to come out of fixed contracts.

    The cap is £1,971 now. The price will increase to £3,549 in October, an estimated £5,387 in January, £6,616 in April and £5,897 by July. 

    Let's say someone has a fix at £3,0000 which is just below the October cap. The energy company (should) have hedged and bought that energy for below that figure. If you stay in contract, they will sell that energy to you and maybe a fairly small profit.

    Now if they let you out of that fix... they can sell the energy to you for £1,971 but in reality are selling it at the new price cap as the govt are giving them the rest. Energy they have bought hedged at £3,000 they will be able to get well in excess of £5k between your payment and the govt loan and you would be happy about it because you are paying less than £2k.
    The pessimism will evaporate only when theres some recognition that there are people on fixed deals above the April cap with high exit fees in even one of the many news items appearing now - or at least somewhere in the detail supporting the announcement.

    If it was a gift then they might well want more on variable but as its a loan which they have to pay back with interest I'm not sure they see it a way of making profit per customer - its more to avoid future issues with people having trouble paying - which wouldnt apply to fixed customers so much.
  • sienew
    sienew Posts: 334 Forumite
    100 Posts Name Dropper
    jak22 said:
    sienew said:
    jak22 said:
    If the scheme is a loan then the whether its applied to reduce the unit rate or as a cash amount and by how much and its duration could be up to each energy company as they're going to have be able to pay it back eventually. That cash still has to be found by the govt initially so its not really very likely the govt will add £400 per person as well - and anyway it was a scheme of the previous administration.

    A unit price subsidy wont apply to fixed contracts but - as long as someone with influence stands up and mentions it - maybe there could be a cash amount for fixed deals over the April cap given that the £400 had been promised and was a factor when people chose a fix. 
    I think people are under estimating how much energy companies might want people to come out of fixed contracts.

    The cap is £1,971 now. The price will increase to £3,549 in October, an estimated £5,387 in January, £6,616 in April and £5,897 by July. 

    Let's say someone has a fix at £3,0000 which is just below the October cap. The energy company (should) have hedged and bought that energy for below that figure. If you stay in contract, they will sell that energy to you and maybe a fairly small profit.

    Now if they let you out of that fix... they can sell the energy to you for £1,971 but in reality are selling it at the new price cap as the govt are giving them the rest. Energy they have bought hedged at £3,000 they will be able to get well in excess of £5k between your payment and the govt loan and you would be happy about it because you are paying less than £2k.
    The pessimism will evaporate only when theres some recognition that there are people on fixed deals above the April cap with high exit fees in even one of the many news items appearing now - or at least somewhere in the detail supporting the announcement.

    If it was a gift then they might well want more on variable but as its a loan which they have to pay back with interest I'm not sure they see it a way of making profit per customer - its more to avoid future issues with people having trouble paying - which wouldnt apply to fixed customers so much.
    "They" aren't repaying the loan with interest, we are, it will be added to customer bills over the next 10 years. And the loan they get would be as good as cash as the proposals suggest the loan is fully backed by the govt. It's almost the equivalent of them owning government bonds which on a balance sheet is pretty much considered as good as cash.

  • People listened to warnings, predictions and advice and made a free choice to fix.  Choices should have consequences.
    Personally I fixed quite late, opting to pay as little as possible on the SVR for as long as I was comfortable. The consequence of my decision was that I didn't get as good a rate as those who fixed earlier. The early fixers in turn might have grabbed a better long term rate, but the consequence of that decision meant paying above the SVR for longer, swapping a short term hit for security. I'm sure what made that palatable was the knowledge that they were protected in the months ahead. Had the bottom fallen out of the energy market and the obscene Oct cap never been announced, then I would agree with you. Fixers hedged their bets and lost and would need to pay the penalties outlined in their contracts to drop back onto a lower SVR. Those consequences of choices would be acceptable.

    However, the energy predictions came true and the consequence for those who made a choice to fix and pay more should now be reaping the rewards for early decisions.

    What has changed is possible third party interference. If the new PM wades in to the rescue where are the consequences for those who chose not to fix? The 'I can't reduce my usage or pay more or plan ahead' brigade who now demand the Govt splash the cash, our tax paying cash, they don't have? How many hours/years have I watched Martin on the TV telling people to switch energy companies to save money? Do they ever listen? Nope. Were they jolted into taking action over energy cap predictions? Nope. Have many just sat back, expecting to be rescued? Yep.

    It's not fair, I get it but the price of energy is way above any of our comfort zones. I might be a newbie to this forum but the number of people who have visited, desperately trying to secure a fix since the Oct
    cap was announced are also those who could have chosen to fix earlier but didn't.  The majority seem to understand the consequences of being caught napping this time and want to ensure that next year's predictions don't mean they get a slapped bottom as well.

    Yes, we all agree that not everyone has internet access or the mental capacity to follow the news, but how many times have I read contributors saying that they've tried to explain the situation to family, friends and colleagues but that the warnings fell on deaf ears? Where are the consequences for those people? The inactive, the can't be bothered, the it won't happens? Why should those who paid attention, accepted personal responsibility and made plans be those left to take a financial hit if the Government now back tracks from saying it won't intervene and make the best plans you can? 
  • [Deleted User]
    [Deleted User] Posts: 0 Newbie
    Fifth Anniversary 1,000 Posts Name Dropper Photogenic
    edited 5 September 2022 at 11:33PM
    Trynsave2 said:

    Why should those who attempted to take responsible, positive action be penalised whilst those who sat on their laurels are rewarded? That is this country all over. I'm not saying that those on the SVR have doomed themselves by inaction and should be left to suffer, but I am saying that it shouldn't be tough luck, you caved and you lost, to all those of us who listened to the warnings and fixed.
    1. Fixed vs variable decision has always been the same for the last couple of decades, both are a gamble in terms of whether they work out best in the long term. Typically fixed means paying more now, but if, as inevitably energy prices have always done, they increase, then the long-term fix can work out cheaper. But not always and it has never been guaranteed, there have always been people taking fixed deals that have lost out, similarly people on variable deals have lost out.

    Fixed deals may still work out better in the long term even if prices do get frozen for a bit, nobody knows and that is the whole point, if anybody knew 100% certain what was going to happen in the future then this whole fixed/variable choice would be obsolete.

    2. Not every one that chose SVR is sitting on their laurels, it was a choice, same as it has been for the past 20 years. Ok so around 50% of people have never bothered changing energy supplier/tariff and just stayed on a big 6 SVR but they've lost a fortune over the past 20 years anyway from inaction that almost certainly adds up to more than they might gain this winter, even with a price freeze.

    3. To say "responsible, positive action" is being penalised doesn't look good, you are suggesting that those who "sat on their laurels" or chose SVR are irresponsible?

    I've been using complex spreadsheets for the last 20 years to work out the best energy deal long before the easy switching and comparison sites, keeping track of my consumption, the tariffs and suppliers I snubbed versus the one I chose, switching sometimes 3 times a year, it is all part of the process, and sometimes I've made the wrong choices, chose fixes that worked out more expensive, chose cheap variables that shot up months later etc. You win some you lose some.

    If my suppliers hadn't gone bust 12 months ago I'd still be on a fixed tariff until 2023 that is much less than the last April price cap, but I'm not feeling that I've been penalised or doomed like you are, I'm not bitter towards the people that made a different choice and picked a higher fix with a big 6 that now looks great in comparison.

    I had access to exactly the same information as you did and I've missed a few good fixed rates since I was transferred to a SOLR that could have saved me money this winter because I made the wrong choice. I kept thinking, that prices can never go that high or they are bound to come back down again soon so I stuck with variable - it was a choice and somewhat of a gamble.

    Even with all the government help, I'll still be worse off than if I'd selected a 2-year fix with a big 6 12 months ago but hey ho, I'm not bitter towards anybody that is paying less than me right now and neither am I smug about the savings I've made over the last 20 years that the "laurel sitters" didn't catch.

    Maybe your fixed price will look great in a few months, maybe my irresponsible SVR choice will turn out best, who knows? Nobody.

  • sienew
    sienew Posts: 334 Forumite
    100 Posts Name Dropper
    edited 9 May 2024 at 12:42PM
    Trynsave2 said:

    Why should those who attempted to take responsible, positive action be penalised whilst those who sat on their laurels are rewarded? That is this country all over. I'm not saying that those on the SVR have doomed themselves by inaction and should be left to suffer, but I am saying that it shouldn't be tough luck, you caved and you lost, to all those of us who listened to the warnings and fixed.
    1. Fixed vs variable decision has always been the same for the last couple of decades, both are a gamble in terms of whether they work out best in the long term. 

    The issue I see is they have made the right choice, energy prices have continued to rise but now the goal posts have been moved. Government intervention on this level is unprecedented and it's actually a dangerous precedent for people to avoid a fix i future in the hopes that the govt with a magic money tree will somehow come bail them out.
  • Out of curiosity I wonder how much energy has been wasted debating pure speculation of what may or may not be decided later this week?

    There was a lady on the news earlier that didn't want a financial struggle at the age of 59, and that the government must step up and support people more otherwise what's the future going to look like for her children and grandchildren. 

    People really seem to be missing the obvious that all this help and support today is going to take years to pay back, we the tax payers and future tax payers are going to be picking up the tab. 




    Make £2023 in 2023 (#36) £3479.30/£2023

    Make £2024 in 2024...
  • [Deleted User]
    [Deleted User] Posts: 0 Newbie
    Fifth Anniversary 1,000 Posts Name Dropper Photogenic
    edited 5 September 2022 at 11:43PM
    sienew said:
    Trynsave2 said:

    Why should those who attempted to take responsible, positive action be penalised whilst those who sat on their laurels are rewarded? That is this country all over. I'm not saying that those on the SVR have doomed themselves by inaction and should be left to suffer, but I am saying that it shouldn't be tough luck, you caved and you lost, to all those of us who listened to the warnings and fixed.
    1. Fixed vs variable decision has always been the same for the last couple of decades, both are a gamble in terms of whether they work out best in the long term. 

    The issue I see is they have made the right choice, energy prices have continued to rise but now the goal posts have been moved. Government intervention on this level is unprecedented and it's actually a dangerous precedent for people to avoid a fix i future in the hopes that the govt with a magic money tree will somehow come bail them out.
    Likewise, the massive price hikes of the last 12 months have been unprecedented. If they had been foreseen we would all be on a 2 or 3-year fix offered in summer 2021 and wouldn't even be having this debate but fixing hasn't always been the right thing to do and it never will be.

    If fixing always guaranteed the best deal, then energy companies would not be able to afford to offer them, they rely on the fact that some fixed deals have worked out worse for the customer, which is no different from when the first ever fixed deal was sold to what is happening now.

    If we'd all fixed in summer 2021 for 3 years then even the big 6 would be going bust or asking for government help.
  • sienew
    sienew Posts: 334 Forumite
    100 Posts Name Dropper

    If fixing always guaranteed the best deal, then energy companies would be able to afford to offer them, they rely on the fact that some fixed deals have worked out worse for the customer, which is no different from when the first ever fixed deal was sold to what is happening now.

    If we'd all fixed in summer 2021 for 3 years then even the big 6 would be going bust or asking for government help.
    No. That isn't how it works. Until recently fixed deals have fairly consistently been the best deals and FAR better than the price cap. The energy companies generally do fixed deals by hedging, essentially buying energy today to sell to you over the 1/2/3 year fix so it's almost like locking in todays price for the fix period.
  • Out of curiosity I wonder how much energy has been wasted debating pure speculation of what may or may not be decided later this week?

    There was a lady on the news earlier that didn't want a financial struggle at the age of 59, and that the government must step up and support people more otherwise what's the future going to look like for her children and grandchildren. 

    People really seem to be missing the obvious that all this help and support today is going to take years to pay back, we the tax payers and future tax payers are going to be picking up the tab. 
    There are lots of things net taxpayers are picking up the tab for, the UK has not had a budget surplus and so paid down total debt since FY 2000/2001. Less than a third of working age adults make a net contribution so the vast majority of people in the UK are being funded by others. The UK has been living beyond it's means for 47 of the last 50 years, the bottom two thirds of earners have the lowest rate of income taxation in the UK, we have the lowest rate of net contributors in the G20, the UK is a fiscal basket case.
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