Energy bills will rise from April but the government will provide more targeted support to the most vulnerable households.
Unveiling his highly-anticipated autumn statement in the House of Commons today (17 November), Jeremy Hunt announced that the government’s Energy Price Guarantee, which currently caps bills at £2,500 a year, will rise to £3,000 from April 2023. Without the government’s support, experts have said the figure could have hit £3,700.
The increase to the cap, which will run for a year, means millions of households will see their energy bills go up by hundreds of pounds.
However, while the average household’s bills will rise, the Chancellor said he would be offering more support for the most vulnerable members of society. He revealed that those on means-tested benefits will receive an additional £900, while an extra £300 will be given to pensioner households and £150 will be afforded to people in receipt of disability benefits.
It comes as the South West Surrey MP revealed his autumn budget as he continues to try curb inflation and tackle the cost of living crisis. Speaking to MPs in the House of Commons, Hunt announced a series of new fiscal plans - including various tax hikes which come in contrast to the tax-slashing agenda announced by his predecessor Kwasi Kwarteng.
Previously, Hunt ditched “almost all” of the tax cuts announced by Kwarteng in his £45 billion package of unfunded tax cuts. He said the tax measures alone would bring in £32 billion after economists estimated the government was facing a £60 billion black hole in the public finances. To take control of this, the new Chancellor has frequently warned of more “tough” decisions to come.
In an emergency statement he said: “We will reverse almost all the tax measures announced in the growth plan three weeks ago that have not started parliamentary legislation.
“So whilst we will continue with the abolition of the health and social care levy and stamp duty changes, we will no longer be proceeding with the cuts to dividend tax rates, the reversal of off-payroll working reforms introduced in 2017 and 2021, the new VAT-free shopping scheme for non-UK visitors or the freeze on alcohol duty rates.”
Hunt said the government’s main objective moving forward will be ensuring “stability”, adding: “Governments cannot eliminate volatility in markets but they can play their part and we will do so, because instability affects the prices of things in shops, the cost of mortgages and the values of pensions.”
What did Jeremy Hunt previously say about energy bills support?
Before revealing today’s plans (17 November), Hunt announced that help with energy bills for households will only last until April, as opposed to for two years, with a review to find a “new approach” that will “cost the taxpayer significantly less”.
In a statement, he said: “The biggest single expense in the growth plan was the energy price guarantee. This is a landmark policy supporting millions of people through a difficult winter and today I want to confirm that the support we are providing between now and April next year will not change.
“But beyond that, the Prime Minister and I have agreed it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices.
“So I’m announcing today a Treasury-led review into how we support energy bills beyond April next year. The objective is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need. Any support for businesses will be targeted to those most affected and the new approach will better incentivise energy efficiency.”
He has now confirmed that from April, average bills will rise to £3,000 a year.
Cornwall Insights had previously predicted bills would rise to £6,616 in April, before the Energy Price Guarantee was introduced for October.
In response to the announcement, Mike Foster, CEO of the Energy and Utilities Alliance, said: “News that the energy price cap protection coming to an end in April will surprise and worry millions of hard-pressed families. Together with the announcement that promised tax cuts have also been withdrawn will heap huge financial pressure onto those already struggling to pay their bills.”
“The Treasury-led review to support families in the future looks like an excuse to cut support in these uncertain times, when we don’t know what energy prices will be. While all this is happening, the government’s own Boiler Upgrade Scheme hands out £5000 subsidies to the well off to change their heating, while millions struggle to pay their bills. It’s immoral in these difficult times and needs to be culled, with the money used more wisely.”
What is the Energy Price Guarantee?
The government’s energy Price Guarantee, which came into force from 1 October, replaced the £1,971 cap and meant the average household bill would be around £2,500. However, the government’s plan only caps the cost per unit that households pay, meaning actual bills will still be determined by how much energy is consumed.
MoneySavingExpert Martin Lewis has repeatedly warned that there is no cap on energy bills and the limit is not £2,500. He clarified that the cap is actually on the standing charges and the unit rates for gas and electricity, meaning if you use more energy, you will pay more.
Lewis reiterated this point following Liz Truss’ round of media interviews last month in which she repeatedly spoke about the energy price guarantee limiting the average bill to £2,500. The consumer saving is based on usage, meaning if households use more energy they could end up paying more than £2,500.
He said that communicating there is a price cap is “risky” because some people may mistakenly think they can leave the heating on all the time in winter without being charged more than £2,500.
Mr Lewis later clarified how the energy price guarantee will work on ITV’s Good Morning Britain, and stressed that the more energy people use the more they will pay.
He said: “There is “no cap of £2,500 on what you can pay on energy bills. What there is, is a cap on standing charges, which is a daily charge you pay and the unit rate - how much you pay for each unit of gas and electricity you use - that’s what’s capped.”
The £2,500 figure is based on what the energy regulator Ofgem calculates as the “typical “ bill, “but if you use more you’ll pay more,” he added.
“It’s a cap on your unit rates. It limits how much you pay on each unit of gas and electricity. It is not a cap on total costs. The old price cap wasn’t, and the new guarantee, which is effectively a two-year long price cap, isn’t either.
Mr Lewis said it was a “miscommunication” for the Prime Minister to say that it was an overall cap on bills.
Pound strengthens after Hunt statement
The pound strengthened and UK government bonds rallied further as Hunt announced plans to reverse key policies in the Kwarteng’s mini-budget.
Sterling rebounded by more than 1.2% to 1.139 against the US dollar shortly after Mr Hunt gave his emergency statement to calm the financial markets.
Yields on 30-year government bonds, or gilts, eased back further by around 10%, as the Chancellor set out plans to shave off billions of government debt. The interest on long-dated bonds hit a low of around 4.32% shortly after the first announcement.