Dealing with the looming energy crisis this winter has been the priority for new Prime Minister Liz Truss. One of her first moves was to announce a new policy that will cap everybody’s energy bills from October at a lower rate than was previously expected.
But the detail is complex and there are exceptions to the cap. Here’s what you need to know about how it will affect you.
What has changed?
Energy prices were expected to rise very steeply in October, with the cap set by energy regulator Ofgem rising 80 per cent.
This cap is the highest amount that energy providers are allowed to charge their customers for the gas and electricity they use, and although providers can charge less, the high wholesale prices for gas (which feeds through to electricity prices) means that most do not.
The average annual cost of heating a home would have soared from £1971 a year to £3549 a year under this cap.
What happened this week is that Liz Truss decided that the cap should be lower, so that the average cost of heating a home will be £2,500 instead of £3,549 – a relief to many.
Does this mean I can use as much energy as I like and only pay £2500?
No. You will be charged for the energy you use, but each unit will be at a lower rate than was expected (though still higher than it is at the moment). This means that those who use less energy will still pay less, and it is sensible to reduce energy costs as much as possible.
How long is this cap guaranteed for?
For domestic customers, the new price is guaranteed for two years.
What about the payments we were all meant to receive to help with bills?
The £400 energy bill payment that we were all meant to receive from October onwards will still appear in your energy account, meaning that the average payment by a household will be £2100 – further lessening the pain of high bills.
What happens if I have a fixed rate contract?
It is not yet clear what will happen to those with a fixed price energy contract – it is possible that they will be able to come out of these contracts without paying exit fees if they are more expensive than a capped rate, or that the price of energy for those on these contracts will also be discounted by a proportionate amount.
I heat my home with heating oil/have a shared contract with the rest of my block of flats. What happens to me?
Full details are not available yet, but Truss said that those who are off grid, or pay for energy in a shared manner (which includes those in park homes as well as some flats) will not be worse off but will be able to access a fund to deal with increases.
How is this being paid for?
The scheme is expected to cost £150 billion. There is little detail on how it will be paid for, apart from with more borrowing. You will not have to pay back the difference.
What about businesses?
The government has also said it will cap business payments for six months – after which it will help only those deemed to be in more ‘vulnerable’ industries. This means that businesses have less certainty going forward than ordinary people.
Is there anything I need to do now?
Not really. Energy is still expensive and going to get more so in October so anything you can do to reduce your bills, such as arranging insulation or using LED bulbs, will help. Installing a smart meter for free may help you to keep tabs on your energy use too.
What about my investments?
While the stock market has risen on the back of Truss’ announcement, it is a double-edged sword in that it may raise consumer confidence but will leave the country in more debt.
Inflation may be slightly lower than predicted, but it is not yet clear whether this will be the case or the effect on interest rates or the stock market. Investing in solid businesses within a diversified portfolio is still the best way to get through a bumpy winter.
20th September 2022