What happens if your energy firm goes bust?

Fears have been raised of potential gas shortages

Finances could be tight for households due to surging global wholesale gas prices. - Credit: PA

Household finances are under pressure as some energy firms are being pushed over the brink.

Around 1.5 million households have seen their suppliers go bust after the sector was hit by surging global wholesale gas prices.

Here is how the ongoing issues in the gas sector could affect you and your energy bills.

What is happening to energy bills?

The cost of energy is rising significantly due to gas price increases.

Regulator Ofgem regularly sets an energy price cap, which acts as a "backstop" protection for customers on default tariffs. The cap will increase to £1,277 from October 1 for a typical user.

Customers leaving cheap deals may be forced to pay hundreds more pounds annually after being bumped up to the top of the price cap. 

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Consumer champion Martin Lewis suggested from April 1 the cap could jump to more than £1,500 a year.

What has happened to energy firms already?

Collapsed companies account for 5pc of the market so far. Avro and Green have collapsed this week and PFP, MoneyPlus, Utility Point and People's Energy have exited the market over the last two weeks.

Last month HUB Energy also stopped trading.

What about other energy firms?

More firms could be affected and some have stopped taking new customers.

Major players such as British Gas, Scottish Power, E.On and EDF could potentially benefit from reduced competition, as well as some of its bigger challengers.

What happens if my energy firm goes bust?

Ofgem will protect any credit balance and will appoint a new supplier. However, the new deal may be more expensive than current costs.

If your company does go bust, Ofgem advises customers to take a meter reading and await the change of supplier.

When people are contacted by their new supplier they can ask to be put on the cheapest tariff - or switch without paying exit fees.

Will we go back to a 1970s situation of blackouts?

There is no risk of blackouts. While energy prices may increase, energy supply is secure. 

What about my supermarket shop?

There are concerns people may start panic-buying, especially as Christmas is near. The government has said the UK has a resilient supply chain and can respond to the challenges. 

What else is making life tough financially right now?

Inflation is running at a nine-year high this year and living costs have already risen. Living costs could rise by 4pc by the end of the year.

Many households are still reeling from the financial impact of the pandemic with high debts and job uncertainty.

What is happening in the near future?

The £20 uplift of Universal Credit is set to end on October 6 affecting 4.4 million households, adding further pressure.

Anything else on the horizon?

A further £12 billion tax hike to fund social care reforms. The increase in National Insurance is expected in April 2022.

So what can households do to try to offset rising costs?

Consumers should shop around and compare energy prices to get the best deal. Although with rising prices all around, this will be tougher than usual. 

Ofgem has information about the support available.

Any other ways households could cut back and make savings?

You can make small savings over time by buying reduced food at supermarkets, making packed lunches, or changing mortgage providers.

The Government-backed Money Helper service has budgeting guides.

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