Prime Minister announces £2,500 cap for household energy bills

News and Info from Deeside, Flintshire, North Wales

This article is old - Published: Thursday, Sep 8th, 2022

Prime Minister Liz Truss has announced today that the energy price cap will be frozen at £2,500 for the next two tears.

Speaking in the Commons she said: “ I promised I would deal with the soaring energy prices faced by families and businesses across the UK and today I’m delivering on that promise.”

“This government is moving immediately to introduce a new energy price guarantee that will give people certainty on energy bills.”

“It will curb inflation and boost growth.”

“This guarantee which includes a temporary suspension of green levees means that from the first of October, a typical household will pay no more than £2500 per year for each of the next two years while we get the energy market back on track. ”

The price cap, which limits the amount energy providers can charge per unit of energy to customers on a standard variable tariff, was to rise by 80pc in October, resulting in the average household energy bill soaring from £1,971 to £3,549 a year.

Responding to the UK Government’s announcements on energy costs, Luke Young, Assistant Director of Citizens Advice Cymru said:

“We welcome the UK Government’s action to cap energy prices for two years. The announcement will provide some reassurance after months of worry amid rising costs. However, this alone will not solve the cost of living crisis.

“Households in Wales have been struggling for months. Across our services, requests for food and fuel crisis support have remained at record highs. We must not lose sight of the fact this will still be a difficult winter for low income and vulnerable households.

“The UK Government must move swiftly to ensure people – particularly those off grid and on heating oil – feel the benefit of today’s announcements, and the Welsh Government must focus relentlessly on getting the Wales Fuel Support Scheme and other payments out to those eligible.”

A fuller UK Government statement is below…

HM Government is acting to protect British households from the spiralling costs of energy. The Energy Price Guarantee (EPG) which will give people certainty with their bills. The EPG will apply from 1 October and will discount the unit cost for gas and electricity use.

This guarantee, which includes the temporary suspension of green levies, means that from the 1^st October a typical household will pay no more than £2500 per year for each of the next two years. This will save the typical household £1000 a year. It comes in addition to the £400 Energy Bill Support Scheme.

The scheme will start on the 1^st October 2022, when Ofgem’s new price cap is due to come into effect. Cost projections for the delivery of the EPG are uncertain as they depend upon usage levels (which are highly dependent on weather patterns) and, for future three-month periods, the wholesale price of energy.

The new guarantee will apply to households in Great Britain, with the same level of support made available to households in Northern Ireland.

HM Government will also support all business, charities and public sector organisations with their energy costs this winter, offering an equivalent guarantee for six months.

The Chancellor of the Exchequer will set out the expected costs as part of the fiscal statement later this month.

In response, Labour leader Keir Starmer said: “We’re in the middle of a national emergency people are really scared of.”

“Families don’t know if they can warm their homes this winter and businesses ask if they can keep the lights on.”

“That is why the Labour Party is fighting for a price freeze so that no household would pay a penny more on their bills.”

“When we called for it, many people said we were wrong, they pretended that this crisis was something that just affected the poorest, as if working families on average wages could easily shoulder astronomical bills.”

“They dismissed our call for support as handouts, but those objections could never last.”

“The Prime Minister had no choice, no government can stand by when millions of families fall into poverty, while businesses shut their doors or the economy falls to ruin.”

“So I am pleased there is action today, but under our plan, not a penny more on bills under this plan, a price rise.”

Commenting on the proposals, TUC General Secretary Frances O’Grady said: “Freezing energy bills this autumn is essential for families and to protect jobs and businesses.”

“But the Prime Minister is making the wrong people pay. She should have imposed a much larger windfall tax on profiteering oil and gas giants. And she should have required all firms getting help with energy bills to commit to no lay-offs for the lifetime of the help, to protect livelihoods.”

“And it’s not just energy bills soaring – so she needs to do more to help families get through the winter.”

“That means a real plan to get wages rising, a big boost to universal credit, child benefit and pensions, and a massive rollout of home improvements to cut bills. And it’s time to bring energy retail into public ownership to make sure this crisis never happens again.”

Martin Lewis, founder of MoneySavingExpert.com, said: “On the back of a prior briefing and the announcement in parliament, here is my very quickly bashed out summary of the new energy price freeze.

The new price guarantee starts 1 Oct, and for someone on typical use will be £2,500/yr and it will last for two years.
The current price cap is £1,971/yr rate at typical use, and was due to rise to £3,549 (and likely £5,400 in January). It was £1,277/yr last winter.
This will be a cap on standing charges & unit rates, so use less you pay less, use less you pay more (I’ll publish the rates when I have them). There is not total cap on what you pay, the typical rate is just a figure for illustration.
The new lower price cap includes getting rid of the green levies.
The £400 payment to all homes (paid as £66 a month over winter) will continue.
That will take the average payment to £2,100/yr.
To estimate what you’ll pay, over a year, multiply current costs by 6.5% (each £100 becomes £106.50) this includes the £400 discount (but not other payments).
For those with lower than typical bills, the % increase will be lower, for higher users higher (as the £400 payment is flat regardless of use, so has a bigger proportionate reduction on lower usage).
The £650 payments to those on many benefits will continue (half’s already been paid).
As will the £150 to those with disabilities and £300 to pensioners.
There’s no announcement on whether these payments will be in place next winter, I suspect the political reality is at least for benefits recipients, similar will be paid next year.
VAT is not being reduced in this announcement, but there is a chance (50 – 50 I’d say) that may happen in the Chancellor’s fiscal statement next week.
For those on LPG and heating oil there I’m told there will be discretionary payments to help them too (awaiting details).
For those in park homes and who pay landlords directly, I’m told they should benefit from the new business help (awaiting details).
Those on fixes, can either stay on them, or can leave and switch to the new state subsidised tariffs with no exit penalties.