Martin Lewis: How the new flat-rate £200 energy bill loan really works – 2 minute video explainer

Martin's video explainer

You can turn on subtitles by selecting the closed captions icon at the bottom right of the video.

Here's a full transcript of Martin's analysis on the Government's new £200 energy loan

"I know there is a lot of confusion about the £200 bill credit loan on energy that's due to start in October and much misunderstanding about it. So I want to talk you through in practice how it will work.

"What will happen is this – in October, on every single electricity bill in England, Scotland and Wales, you will either have your bill reduced by £200, or you'll be given a bill credit. If you're on prepay, they'll pay it through your smart meter or they'll give you a voucher or a cheque.

"This is going to happen. There is no choice about it. It is not optional and it is going to happen automatically on every single bill. Then from the following April, and for five years after that, you will then have your bill automatically – without choice – increased by £40 a year. That is how it will work.

"The best way to think of it is as a form of energy bill levy. We already have levies on energy bills, we all pay a part of our bill which goes towards green infrastructure, whether you have green energy or not. A part of our bill goes towards funding the cost of moving customers whose firm has gone bust to a supplier of last resort. That is a levy added to our bill.

"So what's going to happen here, is in October, we'll have rather strangely a negative levy. They will take £200 off bills. And then each April after that, they will add a £40 levy back on them for five years to recoup the cost.

"There is no personal loan to an individual. This isn't about, you borrowed money, you pay it back. So if you're living at home with parents and you move out in two years' time, even though you didn't get the £200, your bill will still be £40 higher – every household will be charged £40 more. You'll simply get your energy bill and it will be higher because of this levy and the one this October will be lower.

"There's no sort of loan account to an individual or even to a household. It's more a negative levy than a positive levy. Hope that clears it up."