New Prime Minister Liz Truss has announced a freeze on the cost of energy to help households and businesses with soaring gas and electricity bills.
The Government scheme caps typical bills at £2,500 a year for two years. This is £1,000 below the level they are expected to hit in October and many thousands below rises predicted over the next six months. However, it is still well above prices seen last winter.
The move will see the Government subsidising the cost of energy for both homes and businesses. Details of how it will be paid for will be revealed by Chancellor Kwasi Kwarteng later this month, but Ms Truss ruled out a larger windfall tax on energy companies. According to reports, it would be funded through borrowing and repaid by taxpayers.
Ms Truss told the House of Commons on Thursday that the energy price guarantee would “give people certainty on energy bills, it will curb inflation and boost growth”.
She said: “This guarantee, which includes a temporary suspension of green levies, means that from October 1 a typical household will pay no more than £2,500 per year for each of the next two years while we get the energy market back on track.”
Labour leader Sir Keir Starmer said under the Prime Minister’s energy plan the bill will be picked up by working people.
He cited estimates that energy producers could make “£170 billion in unexpected windfall profits over the next two years”.
How much would a £2,500 energy price cap save me?
The cost-of-living crisis means the price cap is the amount many households currently pay, unless they are on a fixed deal.
While the full details of the scheme have yet to be announced, we can estimate how much money a new £2,500 cap could save people.
Coming on top of a planned £400 discount on all bills announced back in July, a £2,500 price cap would effectively freeze energy costs near their current limit of £1,971 for a typical household.
It is a cap on the price of units of energy, rather than overall bills, meaning households which use more gas and electricity would pay more than this.
The cap is usually set by regulator Ofgem and had been due to climb to a staggering £3,549 from October 1.
A ‘typical’ household is classed by Ofgem as having a dual fuel tariff, using a typical amount of energy and paying by Direct Debit.
Those on prepayment meters and those who pay bills in other ways currently pay more.
And the price cap currently doesn’t cover people living in Northern Ireland, only those in Great Britain.
Would the changes affect different regions in different ways?
The energy price cap is, in reality, a series of regional caps. People in some parts of Britain currently pay more for their energy than in others, because it is harder and more expensive to supply gas and electricity to some areas.
It is not clear whether the new cap set by Ms Truss at £2,500 would apply to the whole of Great Britain or whether it would be adjusted to take these supply cost differences into account.
Assuming it is a flat £2,500 cap for the whole of Great Britain, monthly bills would come in at £175 when combined with the £400 energy discount. This is how a cap at this level would save a typical household each month in each region.
- North West: £118
- Northern: £116
- Yorkshire: £118
- Northern Scotland: £119
- Southern: £122
- Southern Scotland: £121
- N Wales and Mersey: £126
- London: £123
- South East: £122
- Eastern: £121
- East Midlands: £117
- Midlands: £121
- Southern Western: £123
- South Wales: £122
- GB average: £121
Our calculations are based on the benefit of the £400 energy discount, which will be paid for six consecutive months, being spread equally across 12 months.
If you are not sure which energy region you live in, you can check using this postcode tool.