Millions of people will get £350 of help with rising energy bills, Rishi Sunak has announced.
The Chancellor said people living in bands A to D would get a £150 discount on their council tax in April as part of measures to help families facing a cost of living crisis.
There will also be a £200 rebate off energy bills in October - but this will need to be repaid over five years.
The discount will be clawed back from people’s bills in equal £40 instalments from 2023, when global wholesale gas prices are expected to fall, the Treasury said.
Millions of households face being clobbered by soaring energy bills, which are set to rise by £693 per year for those on default tariffs from the start of April.
Regulator Ofgem confirmed the energy price cap will increase to a record £1,971 for a typical household following soaring gas prices.
It comes as the Bank of England hiked interest rates from 0.25% to 0.5% after inflation rose to the highest level in ten years.
In a Commons statement, Mr Sunak said: “Without government action this would be incredibly tough for millions of hard-working families.
"So the government is going to step in to directly help people manage those extra costs.”
Under plans to take the "sting" out of the energy bill rises, the Chancellor set out the three-pronged approach to help around 28 million households this year, at a cost of more than £9 billion.
The plan sees a £200 upfront discount for domestic electricity customers, which will be applied to people's bills from October.
It will be repaid in £40 instalments over the next five years, to "spread worst of the extra costs of this year's energy price shock over time", he said.
Households in bands A to D will get £150 discount on their council tax bills in April.
A £144 million funding pot will also be provided to support vulnerable people and poorer people who do not pay Council Tax, or that pay Council Tax for properties in Bands E-H.
But Mr Sunak dismissed calls for a cut to VAT on energy bills, which he said would "disproportionately benefit wealthier households" and become a "permanent Government subsidy on everyone's bills".
The Chancellor defended his decision to only announce temporary help for families - much of which will have to be paid back out of future bills.
Mr Sunak said: “It is not sustainable to keep holding the price of energy artificially low.
“For me to stand here and pretend we don’t have to adjust to paying higher prices would be wrong and dishonest.
“But what we can do is take the sting out of a significant price shock for millions of families by making sure the increase in prices is smaller initially, and spread over a longer period.”
But Shadow Chancellor Rachel Reeves slammed the Chancellor for using council tax as a threshold as some wealthier people live in Band D homes while poorer bigger families can live in Band E.
She said: “That will mean many of the poorest households will not get extra support while some of the richest do. And it’s people living in the north and the Midlands who’ll lose out most.
“The hypocrisy, the day after the government’s Levelling Up White Paper, is obvious.”
Dame Meg Hillier, chair of the Public Accounts Committee, declared: “We now have the Klarna Chancellor - get it now and pay later.”
Furious Labour MP Chris Bryant said: “I know the Chancellor’s all pumped up but this is pretty puny stuff to be honest.
"£350 isn’t going to touch the sides for my constituents in the Rhondda.
"Gas and electricity up for the average family in my constituency by £686. Fuel up by £314. The average weekly shop up by £385.
"Universal Credit cut by £1,040. National Insurance up by £150. And frozen tax allowances by him will cost another £300. That’s £2,875 in a constituency where the average wage is £27,000.
"That is really going to cause hardship. £350 doesn’t even touch it."
