Following Liz Truss’ appointment as leader of the Conservative and Unionist Party and Prime Minister, rumours are rife that Truss will introduce a freeze on energy bills to help households cope with rising bills.
This comes after energy regulator Ofgem confirmed that from 1 October, average energy bills based on typical use will rise by around 80% from the current level of £1,971 to £3,549 when the increased energy price cap (opens in new tab) comes into effect.
Just after being announced as the winner of the leadership contest, Truss vowed to tackle both energy bills and the supply issues that have been a significant driver in energy prices skyrocketing. But what could her plans look like and what could they mean for your bills?
How could an energy bill freeze work and what could it mean for your money?
Reports suggest that energy bills could be frozen which could effectively cancel out the planned price cap hike that is due to take effect from 1 October 2022.
But there is speculation as to the level at which bills could be frozen – some reports suggest it could be around the current cap level of £1,971 or less, while others think the freeze could be at around £2,500. (Although if you take into account the £400 energy support scheme that will be paid to almost all households in Britain from October, if bills are frozen at £2,500, households will pay, on average, close to the current cap for their energy).
Either way, it will be a significant saving on the £3,549 that many households were facing.
Reports suggest that the government will set a new, reduced unit rate for gas and electricity which will effectively replace Ofgem’s price cap. But it also looks likely that the new rate will be reviewed quarterly by ministers.
According to Bloomberg, the bill freeze could cost as much as £130 billion over the next 18 months. It is expected that this will be financed by government-backed loans, and it’s likely that these loans will be repaid from our energy bills over the next 10-20 years.
It is not yet known whether the proposed energy bill freeze will be for all or whether it will be limited to those who are more vulnerable.
How likely is an energy bill freeze?
It is not yet confirmed whether an energy bill freeze will be announced, but official word is expected later this week. However, according to Bloomberg, campaign officials have confirmed the details, although a spokesperson for Truss declined to comment.
This additional energy bill help comes after criticism that the £400 Energy Bills Support Package was not enough to help households cope with the steep price increases.
Speaking of further price cap increase predictions for January 2023, Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:
‘It is essential that the government use our predictions to spur on a review of the support package being offered to consumers. If the £400 was not enough to make a dent in the impact of our previous forecast, it most certainly is not enough now. The government must make introducing more support over the first two-quarters of 2023 a number one priority.
‘In the longer-term, a social tariff or another support mechanism to target support at the most vulnerable in society are options that we at Cornwall Insight have proposed previously. Right now, the current price cap is not working for consumers, suppliers, or the economy.’
In addition to further energy bill help, Liz Truss has also pledged to reverse the 1.25 percentage point National Insurance hike that came into force in April 2022 to help households cope with the rising cost of living.