Martin Lewis' round-up of the new £2,500 energy price cap – here's what's happening
Energy bills will be capped at £2,500 a year for a typical household from 1 October 2022 for the next two winters, Prime Minister Liz Truss has announced. A £400 energy rebate will also continue to be paid as planned from October. Here's MoneySavingExpert.com founder Martin Lewis' round-up.
Watch Martin Lewis' initial round-up and read his 15 quick-need-to-knows
IMPORTANT: Since the video was filmed there's a possible important update about fixed tariffs, see point 15 below.
New energy price guarantee – 15 quick need-to-knows for consumers
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 October, and for someone on typical use will be £2,500 a year and it will last for two years.
- The current price cap is £1,971 a year at typical use, and was due to rise to £3,549 a year (and likely £5,400 a year in January). It was £1,277 a year last winter.
- This will be a cap on standing charges and unit rates, so use less, you pay less, use more, pay more (I'll publish the rates when I have them). There is no 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 a year.
- 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 benefit 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, 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).
- Since the announcement, I have heard the discount that is being applied to the price-capped tariffs is likely to be applied to all tariffs, including fixes (the new 'price guarantee' will effectively work as a per pound discount off the unit rates of the pre-planned 1 October price cap rate). If this is correct, many fixes that currently look costlier than the price guarantee will end up cheaper. Earlier, the information I was told by the Government was that "all can get out of a fixed tariff without exit penalties". This may have changed, so that it is left up to firms. I will confirm when I know, but be careful acting on any of this before it is cast iron.
"I'm being told there will be legislation, so similar will apply in Northern Ireland.
"However, it's important to note that on the energy price guarantee, the fine print of the policy (eg, unit rates), exact rules on fixes, LPG, Northern Ireland etc is still being finalised. So be careful making decisions based on it yet. I will update our info when we get it."
Additional information on the energy price guarantee
Following Martin's initial summary above, here's some more info on the energy price guarantee and other measures announced.
- The energy price guarantee limits the amount households can be charged per unit of gas or electricity. So your exact bill will continue to depend on how much energy you use. You do not need to apply, and there's no need to contact your energy supplier. For households in England, Scotland and Wales who pay for their energy through monthly, quarterly or other regular bills, the guarantee will be applied when your bill is calculated. Here are the average unit rates for dual-fuel customers paying by direct debit:
Unit rate: 34.00p per kWh
Standing charge: 46.36p per day
Unit rate: 10.30p per kWh
Standing charge: 28.49p per day
However, unit rates vary depending on where you live, so see our Regional direct debit rates and charges round-up for full information. We'll also update this story once our How much will I pay under the price cap? calculator has been updated with the new rates.
- Support will also be offered to those off-grid, including those in park homes and on heat networks, through a discretionary fund. We've asked for more info on this.
- A new scheme for businesses and other non-household energy users will offer equivalent support for six months. After this initial six-month scheme, the Government will provide ongoing support for "vulnerable" industries. There will be a review in three months' time to consider where this should be targeted, though further details have yet to be confirmed.
- An equal level of consumer and business support will be delivered in Northern Ireland. However, exact details on how this will work have yet to be confirmed.
Need help with your energy bills? Here's more info and support
Here's a collection of relevant MoneySavingExpert.com guides, tools and news stories:
- See What to do if you're struggling to pay your energy bills, which explains extra support available.
- See What is the energy price cap? for what it is and how it currently works.
- Here's How you'll receive the £400 energy bill rebate from your supplier from October.
- Here's How the £650 cost of living payment will be paid and when you'll get it, including when people on tax credits will receive the cost of living payment.
- Here's How the £150 additional cost of living payment for disabled people will be paid and when you'll get it.