The government is freezing energy bills at an average of £2,500 a year for the next two years as part of a big shake-up.
So what’s happening?
The planned 80% energy bill rise that was set to take effect next month has been scrapped, with the government announcing that a “typical UK household” will now pay no more than £2,500 a year for the next two years from 1 October.
This means the price cap has effectively been suspended – so next year’s planned increases will not happen either. It had been expected to rise from the current level of £1,971 to as much as £6,000.
Ministers say the new “energy price guarantee” will save the average household £1,000 a year, based on what would have happened in October if the government had not acted.
On top of this, all households will still receive the £400 discount on energy bills that the government announced earlier this year, and Truss will also temporarily remove the green levies that contribute about £150 annually to the average bill.
Both of those will push bills down further, bringing costs “close to where the energy price cap stands today”, said the government.
Myron Jobson, a senior personal finance analyst at the investment platform interactive investor, said: “The new measures clip the wings of soaring energy prices and, along with the pre-existing cost of living support package, they will help take the sting out of the cost of living crunch to some degree for vast swathes of the population … but energy bills will remain shockingly high.”
How will it work?
The energy price guarantee will supersede the existing Ofgem energy price cap, and will limit the price suppliers can charge for units of gas.
The government says of the guarantee that it “is automatic and applies to all households”.
The government is basically providing energy companies with the difference between this new lower price and what they would charge if it was not in place.
The guarantee will apply to households in Great Britain, with “the same level of support” made available to people in Northern Ireland.
So will I pay no more than £2,500?
Ah, this is often not made clear, but some people will definitely pay more than £2,500 (and some will probably pay less). It is important to stress that the £2,500 figure is based on a “typical” household on a dual-fuel deal with “median consumption”.
What you actually end up paying will depend on lots of things – the size of your property, your individual energy consumption and how well or badly insulated the property is.
The government has issued figures showing that under the guarantee, and based on those “typical” and “median” caveats, the figure for a detached house will not be £2,500 but £3,300 – but it would have been £4,700 if the October price cap rise had gone ahead, say ministers.
For a semi-detached house, it is £2,650 (it would have been £3,800), while for a flat it is £1,750 (it would have been £2,400-£2,450).
But this is still a lot more than people were paying before?
Yes, that’s right. Last summer the Ofgem price cap was £1,138 a year (based on a household with “typical consumption” on a dual electricity and gas bill paying by direct debit). On 1 April this year it went up to £1,971 a year, and on 1 October it was due to climb to £3,549 a year.
A year ago the average monthly direct debit was just under £95.
Thursday’s announcement suggests a typical monthly direct debit of £208 – so what we pay for energy will still double.
What help is available to get these costs down?
The good news is that the £400 discount on energy bills for all households that the government announced earlier this year (the energy bills support scheme) is being kept.
This is due to be paid to consumers in instalments over six months, with households due to get the first chunk – £66 – applied to their energy bill in October. They will get another £66 discount in November. Then it will be £67 a month from December through to March 2023.
There is other assistance, too, such as the cost of living payments to help with the rising cost of energy and food that were announced by the government this year.
Meanwhile, under the energy company obligation (ECO) scheme, some people can get help towards energy-saving improvements such as loft or wall insulation or replacing or repairing a boiler. You typically have to claim certain benefits and live in private housing, or live in social housing.
What about people on prepayment meters?
Controversially, the Ofgem price cap for those with a prepayment meter has typically been about 2% higher than for direct debit customers, but it is not yet clear if this issue will be tackled under the new guarantee that supersedes the cap.
About 4.5 million domestic customers use energy prepayment meters, and many of them are on low incomes. With a prepayment meter, you pay upfront for your gas or electricity.
Some experts reckon we will see a lot more of these meters installed when the cold weather arrives and more people are struggling to pay their bills, because those who cannot pay are often switched to prepayment meters.
What about people who fixed at a higher rate?
This is another area urgently awaiting clarification.
It is understood some people who are on fixed-price tariffs are likely to receive a matching discount, after negotiations by the government with suppliers.
With some companies at least, it appears people are able to leave their fixed-price deal and move on to the same firm’s standard variable rate with no penalties.
After the announcement, a British Gas customer tweeted that he had taken out a fixed-price deal with the company. “Just phoned them and they have reverted me back to standard variable again with no exit fee charges,” he said.
In a tweet earlier this week, British Gas confirmed that “you can change tariffs any time without any fees – we want you to be on the best deal that you can. The admin fees only apply if you leave us.”
That was in response to a customer who signed up for a fixed-price deal in June, and said she had checked with the company and was told that people can move to the variable rate any time with no exit fees as long as they do not change supplier.
Before Thursday’s move, British Gas’s website said “it’s quick and easy to change tariffs online if you’re already with us”. It stated that you access your account online, go to “tariff switch” and pick your new tariff. It said it would take 24 hours to switch you over and you will not have to pay any exit fees.
Some people have been switching into fixed-price deals that were, on the face of it, expensive, but cheaper than the gloomy predictions that were being made for where prices might go next year.
But as soon as rumours of a possible price freeze started emerging, fixing your tariff became very risky, though some people have signed up in the last few days on the basis that they have a 14-day cooling-off period, so they could bail out if necessary.
Do the moves help everyone?
Under the new scheme, Truss pledged that households who do not pay directly for mains gas and electricity will not be worse off. They include the many rural homes that use fuel oil, those living in flats with communal heating systems (AKA heat networks) and caravan park residents. She said they would receive personal support through a separate fund.
An estimated 400,000-500,000 people live in blocks that rely on communal heating and hot water systems, and they are not protected by the Ofgem price cap, and so potentially face huge bill rises.
What if I still can’t pay?
Contact your supplier as soon as you can if you are struggling or think you may get into difficulty. Under Ofgem rules, suppliers must work with you to agree on a payment plan you can afford. For example, you can ask for payment breaks or reductions.
Citizens Advice says it is “rare” for someone to be disconnected, as your supplier will usually offer to install a prepayment meter instead.
If you use a prepayment meter and cannot afford to top up, you can ask for emergency credit – also known as temporary credit. Your supplier might add this to your meter automatically – if they do not, ask for it.
If you run out of emergency credit, Citizens Advice says your supplier might give you extra if it agrees you are “vulnerable”.