Liz Truss has announced the average energy bill will be frozen at £2,500 for two years in a bid to tackle soaring energy costs in the UK. The new Prime Minister and Conservative leader announced a support package worth between £100bn and £150bn on Thursday which replaces the energy price cap with an "energy price guarantee", effectively freezing the price cap for an average home at £2,500 - or around £200 a month. The plan will be funded by borrowing and will involve measures to increase energy supply including resuming fracking.
In April the price cap rose 54% to £1,971 and had been set to rise to £3,549 from October 1. Ms Truss said the government knew how "worried families were about getting through this winter" and that the measures would "curb inflation and boost growth".
Money Saving Expert Martin Lewis responded with a breakdown of what exactly the prime minister's announcement means.
Read more: Liz Truss announces massive £150bn energy price support package
What has been announced?
The Ofgem price cap, which was announced in August and would have seen the cap soar by 80% to £3,549, will be replaced with a “two year energy price guarantee" which means a typical UK household will pay no more than £2,500 a year on bill for two years from October 1. The move includes temporarily removing green levies worth around £150 a year on average from household bills and will cover England, Scotland and Wales, with a similar scheme expected in Northern Ireland.
A scheme will also be introduced for businesses, schools, hospitals, other public organisations and charities that will “offer equivalent support”, Ms Truss said. This scheme will last for just six months. “Vulnerable” industries, such as businesses in the hospitality sector, will receive longer-term support that will be set out later. Ms Truss said a review in three months will decide which sectors should receive ongoing help.
What does this mean for me?
Mr Lewis said on Twitter that this was a cap on standing charges and unit rates set by energy supplier - not a cap on what customers pay. "So use less you pay less, use more you pay more," he said, adding that he would publish energy rates for each company when they were available, as not all firms have confirmed their new rates since August's price cap announcement.
A £400 discount off energy bills, which will be given to all households in six monthly instalments from October, will go ahead as planned, Ms Truss confirmed. This means the average household will pay around £2,100 per year. Mr Lewis pointed out that the price cap last winter was just £1,277 - meaning a typical home will still be paying around 95% more than they did last winter.
Mr Lewis said that to estimate what you'll pay over a year, multiply your current costs by 6.5% (this includes the £400 discount). He added that VAT was not being reduced in the new announcement, but speculated that this could be changed by new chancellor Kwasi Kwarteng next week.
For those on LPG and heating oil, Mr Lewis said he'd been told there would "discretionary payments" for them too, details of which are yet to be announced. For those in park homes and who pay landlords directly, Mr Lewis said he'd been told they would also benefit from the new business, help, with details to be confirmed.
Other payments previously announced by the government, including a £150 cost of living payment for those with disabilities, and two instalments worth a total of £650 for low-income households, will remain in place. There has been no announcement on whether the £400 discount or these other support payments will also be in place next year.
What if I'm on a fixed rate?
While it was not officially announced by the UK government, Mr Lewis said he had been told directly by the Secretary of State for Business that consumers on fixed tariffs will be able to avail of the new price guarantee if their current price is higher. He said: "Those on fixes can either stay on them, or can leave and switch to the new state subsidised tariffs with no exit penalties." All rates - including those which are fixed - will now be no more than £2,500 a year.
How will the government pay for it?
The Prime Minister said the cost of the new measures would be offset by securing the wholesale price for energy while putting in place long-term supplies at more affordable rates. Ms Truss said the government would be "ramping up supply" by creating a new energy supply taskforce which will negotiate new long-term energy contracts with suppliers at home and abroad. She said this would decrease the likelihood of companies needing government support and "significantly reduce" the cost of the government's intervention.
It will also bolster North Sea oil and gas production, launch a new licencing round which is expected to lead to over 100 new licences and speed up deployment of hydrogen, solar, carbon capture and storage and wind energy. Ms Truss said small modular reactors were a "very important" part of the UK's energy plans and that the government would also be focusing on moving nuclear plans forward.
New chancellor Kwasi Kwarteng will set out the expected costs of the energy package in a fiscal statement later this month, Ms Truss said, adding that the government would also end the ban on fracking, a move likely to be controversial due to fierce debate over its impact on the environment and on local communities.
Labour leader Keir Starmer said he was concerned about how tax payers might be impacted by the cost of the government's plan while energy companies are making "eye-watering profits". Bloomberg has reported that UK gas producers and electricity generators may make excess profits totalling as much as £170 billion over the next two years, according to Treasury estimates. Mr Starmer said he feared that the bill will be picked up by "the working people" and pushed for a windfall tax on energy companies, which Ms Truss has not resorted to in her latest plans.
The plans also don't include any proposals on insulating or retrofitting homes, which Mr Starmer criticised saying “doubling down on fossil fuels is a ludicrous answer to a fossil fuel crisis”.
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