New Prime Minister Liz Truss has announced an energy bill freeze to help tackle soaring energy costs.
Around 24 million households were set to face average annual energy bills of £3,549 when the increased energy price cap came into effect on 1 October 2022. That’s an increase of about 80% on the current cap of £1,971.
While the £400 Energy Bill Support Scheme was announced to help households cope with rising bills through the winter months, there had been criticism that it wasn’t enough, especially with the prices predicted to rise even further in 2023.
Liz Truss had promised to focus on energy bills and energy supply as an urgent priority once she was made Prime Minister.
How will the energy bill freeze work?
The energy price cap announced by Ofgem at the end of August will be reduced from £3,549 to £2,500 for a typical household, as announced by Prime Minister Liz Truss. The energy price freeze will be effective from 1 October 2022 and will be in place for two years. The average household will save around £1,000 a year.
It’s important to remember that the £2,500 figure stated is an average based on typical use. If you use more energy than the average household, you will likely pay more, so finding ways to save energy at home is important.
You may also pay more if you are on a prepayment meter or if you pay for your energy by cash or cheque.
With wholesale energy prices still rising, the government is borrowing money to help energy companies cover the discrepancy between what they pay for the energy they sell, and what they are allowed to charge customers. But how the energy bill freeze will be funded will be confirmed by new Chancellor Kwasi Kwarteng later this month.
Alice Haine, Personal Finance Analyst at Bestinvest, the DIY investment platform and coaching service, commented: ;While £2,500 is over £1,000 less than Ofgem’s energy price cap of £3549, set to come into force on October 1, it is still 23% more than the current level of £1,971.
‘However, with the £400 rebate on top, it means bills will remain around their current level – but that does not take away all the pain for consumers. Energy prices are still significantly higher than they were a year ago, with some households already struggling to absorb the rising costs and food prices are high too. It means household budgets are not completely out of the woods yet.
‘Plus, it is also wise to remember the price cap is not a cap on the maximum bill a household can be charged as what you pay depends on your usage. This means that those using more energy than average will pay higher bills and those using less will pay less, so not everyone is looking at the same bills.’
If you have fixed your energy prices…
If you have fixed your energy prices and think you could could be paying less now the energy bill freeze has been announced, then speak to your energy supplier.
If you have fixed within the last 14 days, you should be able to cancel without any penalty. But if you have been on a fixed rate tariff for longer, then you may face an early exit fee. Given today’s announcement, your supplier may waive any fees for moving you to its standard variable or default tariff, but it is possible they may not.
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