Martin Lewis on what you need to know about the October 1 price guarantee and your energy bills

Martin Lewis explains how the new price guarantee will effect your bills and what it means for people on a fix rate. Credit: ITV/GMB

A new price guarantee on energy bills was announced last week by the government to tackle soaring prices and reduce the burden on consumers.

Liz Truss's plan - paid for by tens of billions of pounds of borrowing - will save the typical household around £1,000 and protect bill payers from further expected rises over the coming months.

It means bills will be significantly higher than last year's - but less than the amount they would have risen to had consumers been forced to meet the costs of the Ofgem energy cap change on October 1, when bills were set to rise 80% to £3,549.

But what does this mean for the average household?

Martin Lewis answers GMB viewers' questions on how what the October price guarantee rate means for people's energy bills.

What's the price cap for business energy?

Genuinely, I don't know. We don't know what's going to be happening, I can't get any more than, there will be a similar cap for six months and then they'll look at vulnerable customers.

We've been asking questions, and I don't see that coming in by the 1 October like the other help, the Financial Times say it could be November.

I don't know because it has not been announced in any detail yet not because I haven't done the work.

Do you recommend declaring meter readings again towards the end of September. Will that be charged at the previous rate?

I will be publishing full details on meter readings, I'm working with the energy companies.

They were so swamped last meter reading day, we're trying to work with them to make it easier for them and easier for customers. If you're on a smart meter you don't need to give a meter reading. If you're not on a smart meter it is useful to get the meter reading in the run up to 1 October - within the week beforehand.

One of the things people say to me is 'can I make my meter reading higher than it really is so that I can get that cheap rate' - that would be fraud.

But what you may be able to do is, if you have prepayment meters, and we're talking not gas, just electricity, and not smart meters, only old school prepayment meters and not Scottish Power, but on other electricity non smart prepayment meters, it looks like if you were to top up as much as you can before 1 October, you would keep that to the lower rate, that current rate, until you top up again.

But you will have to top up again quickly in October because it's by topping up that you get your £66 a month voucher which is the £400 divided each month.

Will my bills be frozen at £2,500?

The price cap and the new price guarantee, which is effectively just a two year longer price cap, has never been a cap on the total amount you pay.

What is often quoted in Parliament, and I've seen media outlets get this wrong, is the new price freeze is £2,500.

And frankly, the £2,500 is just baloney, that number is not relevant. It's just an illustration of what it would mean for someone on an Ofgem defined typical usage.

So, what is the price guarantee?

The price guarantee is the unit rate you pay on a standard tariff, capped at 34p per kilowatt hour for electricity, and 10.3p per kilowatt hour for gas. This is on average, it varies by region, you will need to look it up by region, standing charge can vary a lot.

The standing charge for electricity is 46.4p a day, the standing charge for gas is 28.5p.

If you don't understand that, the big point is: use more, you pay more, use less, you pay less.

What's actually being capped is the amount firms can charge you for each unit of energy you use, that is what is being capped and that has been reduced substantially from what was going to happen in October.

The price cap can vary depending on where you live and how you pay. Credit: PA Images

How much will I pay a more a month?

In October we were expecting that would be an 80% rise and then we thought it would go up again another 50% in January.

Now in October, on average, you will see a 27% rise: in simple terms, for every £100 you pay now, you will pay from October, £127 a month.

However, there is also this winter, the £400 flat reduction to every household. So you get £400 pounds off - paid either £66 or £67 each month from October until March. If you factor that in, the average rise is 6.5% - you'll be paying 6.5% more than you do now.

But, if you have very low use, and that £400 has a big impact, you could actually see what you pay decrease compared to what you pay now. If you have very high use and the £400 pounds won't do that much, your rise will be getting closer to that initial 27% figure.

You'll to pay a little more than you do now if you're a low user, quite a chunk more than you do now if you're a high user.

(The price cap) is per unit and it is going up compared to what you're paying now going up substantially from last winter. But going up nowhere near what it would have done had this new price guaranteed not being put in place.

What if I'm on a fixed rate?

The final guidance for fixes has not been signed off yet. So I'm doing this based on my understanding of both what the government has said and what I've been told by energy firms that the government has told them even though I haven't seen that yet.

If you have a fixed rate, then the government has said that fixed rates will have the same pence reduction of the unit rate that the price cap has compared to October so that's the full price per kilowatt hour off gas 17p per kilowatt hour of electricity.

But they say that this will only apply to fixes that are higher than the new price cap. So that's the first point, if you fixed at a lower rate than the new price guarantee, which is the rate from October, you'll just stay on your cheaper fix, you will not get a pro rata reduction. If you fixed higher than the new price guarantee you will get a reduction of 4p or per unit of gas and 17p per electricity.

Now what the government hasn't printed, but I've heard from energy firms and sounds like it would be right, is that reduction will be bottom out to make you equal to the price guarantee.

Can I leave with my fixed term with no exit penalties?

One thing they did agree on my request, those big firms - British Gas, OVO, Octopus, EDF and Shell - Scottish Power were not there - agreed that once people know they're on a rate that is higher than the new price guarantee, they will allow people to leave and switch to the new price guarantee until at least 15 November - some will allow longer.

You should not be doing anything right now because the exit penalties will still be charged right now. This is a wait and see moment.