What are standard variable tariffs? How energy tariff differs from a fixed tariff - and should you switch?

The UK cost of living crisis is mostly being driven by rocketing energy bills - a situation that is set to get worse in October when the next Ofgem energy price cap kicks in.

The price cap is mostly governed by wholesale energy prices, which have been driven up by the Russia-Ukraine war and high demand for gas as countries emerge from Covid lockdowns.

With predictions of worse to come in the next price cap, several charities and campaign groups have urged the government to intervene or face a major fuel poverty crisis.

One of the most vocal people on this issue has been Money Saving Expert Martin Lewis, who has warned people will die this winter because of the energy cap hike.

So, what does Mr Lewis think should be done about the crisis - and what’s his latest advice on standard variable tariffs versus fixed tariffs?

What did Martin Lewis say about Ofgem energy price cap rise?

Speaking to BBC Radio 4’s flagship news programme Today, Martin Lewis said: “I’ve been accused of catastrophising over this situation.

“Well, the reason I have catastrophised is this is a catastrophe, plain and simple.

“If we do not get further government intervention on top of what was announced in May, lives will be lost this winter.”

Mr Lewis also warned some households that have high energy usage and are on prepayment meters could be set to pay up to £10,000 a year.

“I worry terribly for some of those who have disabled children or disabilities themselves who need lots of electrical equipment to keep their houses warm because of medical conditions,” he added.

Calling on the next Prime Minister to step up support, the consumer expert said: “We must hope that once we have somebody in place, they will come up with a robust strong policy that we can all get behind that feeds people and heats people so we don’t have people dying because of these price cuts these winters.”

“I suspect if it isn’t in place, then people coming from the Don’t Pay movement are going to become a louder voice in this country.”

What is Martin Lewis advice about fixed tariffs?

When the energy market is functioning normally, fixed tariffs tend to offer the best deals.

The idea is that, through competition, suppliers will drive down prices to attract consumers to fix their energy prices with them for a certain period - often one to two years.

But as wholesale energy costs have risen so steeply and major uncertainty continues over how long and severe the energy crisis will be, the advice for much of the past 12 months has been to avoid fixing.

Energy providers have been unable to offer deals below the level of the price cap since last October, meaning millions more households are now on standard variable or default tariffs.

This remains the case.

With further dire forecasts of where the energy price cap could go in the coming year, Martin Lewis has recommended considering any fixed tariffs that are roughly 145% above your current price capped tariff (or 150% above if you like budgeting certainty).

The caveat Mr Lewis makes, however, is that there are still so many unknowns about what could happen next with the energy market that he cannot say for sure whether or not fixing is the right thing to do.

For example, as recently as May 2022, Ofgem CEO Jonathan Brearley was predicting the price cap would rise to £2,800 a year from October.

But the price cap ultimately rose much higher to £3,549, which shows that even energy experts are unsure about what could happen.

Mr Lewis’s Money Saving Expert website has details of some fixes you can make that could save you money.

What is a standard variable tariff?

A standard variable tariff - also known as a default tariff - is typically the most basic electricity and/or gas deal an energy supplier will offer.

Alongside prepayment meter contracts, they are governed by the Ofgem energy price cap.

The price cap was set up to ensure consumers on these tariffs would not get ripped off by energy companies.

You will be on a standard variable tariff if:

• You’ve never switched supplier
• Your fixed deal with your provider has expired
• You have just moved house
• Your supplier has gone bust and you’ve been moved to a different one

At present, these variable tariffs are sitting on the price cap, meaning they will go up in price as the Ofgem cap increases.