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This is what the Government’s action on energy bills means for you

What can we expect from the new PM’s plan (Picture: Getty)

After months of Armageddon-level warnings on energy bills, new Prime Minister Liz Truss last week axed the energy price cap, set to rise to £3,549 in October, and pledged to freeze the cost of energy for two years.

For the average UK household, the Government claims annual bills will be £2,500.

The £400 energy bills discount announced earlier this year by Rishi Sunak stays and will be deducted from all households’ bills automatically in £66 instalments every month from October until April.

The green levy has been suspended temporarily, saving the average household about £150 a year.

How it works

It’s not really terribly clear. The rather large small-print says the Government will cap the amount energy companies can charge customers for one unit of gas.

So, for the next two years:

  • The average unit price for dual fuel customers paying by direct debit will be limited to 34p/kWh for electricity and 10.3p/kWh for gas, inclusive of VAT, from October 1.
  • If you’re on a fixed tariff at a higher rate caused by recent energy price rises, your unit prices will be reduced by 17p/kWh for electricity and 4.2p/kWh for gas.
  • Average standing charges will remain in line with the levels set by Ofgem for the default tariff cap from October 1, at 46p per day for electricity and 28p per day for gas, for a typical dual fuel customer paying by direct debit.
  • An ‘equivalent’ unit cap is promised for businesses, charities, schools and other public bodies. That will last for six months, after which ‘vulnerable’ sectors may get further help. Also rather vague.

Will bills go down?

Unclear. The current cap is £1,971 and the new guarantee is £2,500. But most of us get £400 off this winter. Those on qualifying benefits can still get extra support worth up to £1,200 promised earlier this year.

Energy levels, and bills, can vary hugely from home to home (Picture: Getty Images)

For many households, bills will still rise, although substantially less than they would have if Ofgem’s October cap of £3,549 had gone ahead as previously planned.

Analysts were predicting energy bills to go up to around £8,000 a year for an average household by next April, so compared to what we would have paid by then, the guarantee is a godsend. But most households will still feel squeezed.

The figures, of course, are based on an ‘average’ household, but your energy bill will depend on how much fuel you use. More energy will mean bigger bills. If you live in a big, old or draughty home, your bills will almost surely be considerably bigger this winter than last.



Who is paying for all this?

The Resolution Foundation think tank estimates Liz Truss’s energy deal will cost £120billion (though some have costed higher) just for the support for households, a figure that will rise when business support is confirmed.

How is this being funded?

Truss has been steadfast in refusing to impose another windfall tax on energy company profits. This means the government will pay using money raised through the existing tax regime, largely from income tax, National Insurance, VAT and corporation tax.

It will also have to borrow money to pay for the new deal. With interest rates going up, the debt will get increasingly more expensive. The government will have to pay it back using public funds – so either higher taxes, cuts to public services, or both.

Mortgage rates and the cost of credit card borrowing, and overdrafts are predicted to increase (Picture: PA)

Why not tax the energy giants?

The Treasury estimates the profits of big energy companies are set to be about £170billion MORE than usual over the next two years. But Liz Truss won’t countenance charging them. Why not? She says that hitting them with higher taxes will ‘put companies off investing in the UK’.

What comes next?

Interest rates will still go up, so mortgage rates and the cost of credit card borrowing and overdrafts will keep rising. If the energy price guarantee stops for most businesses from April, as planned, their energy bills will soar.

There are businesses that will see these costs go from a few thousand pounds a year to tens of thousands overnight. It will crash the economy if allowed to happen, with many people losing their jobs. Whatever happens, this will not be the last we hear about the cost-of-living crisis.

How you are affected

  • Dual fuel: Most households in the UK run on gas and electricity and are billed monthly, quarterly or once a year. If you pay by direct debit you won’t have to do anything in order to get the discount. Your energy supplier will knock it off your bill before you get it. We’ve asked the Government if your bills will be automatically adjusted if you pay by cash or cheque – but haven’t yet received an answer.
  • Oil-fuel and off-grid: If you are not connected to the grid – for example, your home is powered by oil – there is ‘comparable support’ from a ‘discretionary’ fund. Again, details are hazy. This also applies for those living in park homes or on heat networks.
  • Prepay meters: Price per unit of energy is capped, but at a ‘small difference’ from other bill payers’ price cap. It’s likely to be slightly more expensive per unit of fuel for these customers, often some of the more cash-strapped in our society.
  • Northern Ireland: Households in Northern Ireland have been promised the same help but not told yet how they’ll get it. Energy supply is managed differently there, so government is ‘working with’ suppliers and official bodies to sort it out.

How the crisis developed and what will happen next

2020

We started 2020 with interest rates at just 0.75% and inflation (CPI) at 1.8%.
But then Covid hit. The Government poured billions into Covid support – essentially putting it on the nation’s credit card. By December, interest rates were at an all-time low of 0.1% while inflation was 0.6%. The energy price cap stood at £1,042, the lowest it had been since it began.

2021

With Covid still a major problem, the Government spent another £50bn on support packages. And then, as Britain opened up, things began to change. From April to June inflation crept from 1.5% to 2.5%, and this was 3.2% by August, 4.2% by October and in December hit 5.4%. In response, the Bank of England adjusted interest rates, ending the year on 0.25%. We headed into the new year with the energy price cap at £1,277.

Rishi Sunak was in charge of controlling bills over the last few years (Picture: Anthony Devlin/Getty Images)

2022

Still recovering from the worst aspects of Covid, this was the year that the then-Chancellor, Rishi Sunak, said it was his priority to bring down the annual deficit after spending £407 billion more than he had planned in 2020, and we started 2022 with taxes at a 70-year high. Here’s how the year has shaped up so far.

February

Thought £407billion extra spending was hard? Things were about to get worse: Russian president Vladimir Putin sends troops into Ukraine, and weaponises energy supplies, sending prices soaring across Europe.

April

The first of the alarming energy hikes. Up to £1,971 – a jump of 54%. It was just the beginning. Inflation: 9%. Base rate: 1%

May

The Chancellor responds to public alarm with a Cost-of-Living support package worth £15billion, providing what he says will be targeted support to the most vulnerable. He plans to fund £5billion of this with what he calls an Energy Profits Levy – essentially a windfall tax on oil and gas firms.

July

Petrol prices reach all-time high at 191.43p a litre. Inflation: 10.1%. Base rate: 1.75%.

Putin’s invasion of Ukraine weaponised the European supply of energy (Picture: Gavriil Grigorov/SPUTNIK/AFP)

September

Liz Truss is appointed Prime Minister, having wooed Conservative members with promises of a low-tax state, although we are yet to see what that will mean in the current climate.

In her first act as PM she axes the energy price cap, which was due to rise to £3,549 (an 82% rise), replacing it with two-year energy price guarantee, fixed at £2,500 (a 27% increase) for the average household.

Inflation: Figures this month are yet to be released but it is expected to rise further to around 11%. Base rate: 1.75%, expected to go to 2.25% next week



Who is paying for all this?

The Resolution Foundation think tank estimates Liz Truss’s energy deal will cost £120billion (though some have costed higher) just for the support for households, a figure that will rise when business support is confirmed.

How is this being funded?

Truss has been steadfast in refusing to impose another windfall tax on energy company profits. This means the government will pay using money raised through the existing tax regime, largely from income tax, National Insurance, VAT and corporation tax.

It will also have to borrow money to pay for the new deal. With interest rates going up, the debt will get increasingly more expensive. The government will have to pay it back using public funds – so either higher taxes, cuts to public services, or both.

Why not tax the energy giants?

The Treasury estimates the profits of big energy companies are set to be about £170billion MORE than usual over the next two years. But Liz Truss won’t countenance charging them. Why not? She says that hitting them with higher taxes will ‘put companies off investing in the UK’.

What comes next?

Interest rates will still go up, so mortgage rates and the cost of credit card borrowing and overdrafts will keep rising. If the energy price guarantee stops for most businesses from April, as planned, their energy bills will soar.

There are businesses that will see these costs go from a few thousand pounds a year to tens of thousands overnight. It will crash the economy if allowed to happen, with many people losing their jobs. Whatever happens, this will not be the last we hear about the cost-of-living crisis.

Do you have a story to share?

Get in touch by emailing MetroLifestyleTeam@Metro.co.uk.


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