New PM Liz Truss told MPs that the energy price will be frozen for the next two years at £2,500, which is £1,000 below the £3,550 cap due to come into effect from 1 October 2022. However, this is already twice the cap level a year ago when it was £1,300.
The £150 annual green levy will also be removed on a temporary basis, while the £400 support towards bills from October will remain.
Truss said: ‘We will absolutely support business, charities and public sector organisations for six months on an equivalent basis and a review of prices will be concluded within three months. Companies also need to look at ways to conserve energy usage.’
There were no details on how the measure will be funded, with Truss stating that ‘the costs will be set out as part of the fiscal statement later this month’. She added that ‘the intervention is expected to curb inflation by 5%’.
An extension of the windfall tax was ruled out, saying that this would damage investment.
The support will be ‘equivalent’ to the household energy freeze but there will be disappointment that it’s only temporary help, with a review after six months. Given that the energy crisis could last three years or longer, many firms are crying out for longer term stability.
Although help for businesses is welcome, there is no detail about how a cap would work as prices are structured so differently, but it is only a short-term measure.
Glenn Collins, head of ACCA UK, added: ‘The support package that has been pledged offers households, and businesses, a lifeline during this time of financial crisis and will be crucial to ensuring that both have much needed certainty and can plan financially from now until spring.
‘Reducing costs for individuals and business owners who are struggling is vital. While this package will be a help in the short term we need to see more action taken by the government to alleviate the financial pressures in the medium and longer term.
‘The upcoming budgets will offer the opportunity to provide the certainty and stability that individuals and businesses desperately need.’
The government will also look at structural changes to the pricing of gas and electricity, which is currently linked, so there is no advantage to stopping the use of domestic gas or choosing a renewable supplier as energy prices are set centrally regardless of type of usage.
A new energy supply taskforce will be set up to address supply issues and negotiate new contract prices, while a new licensing round for North Sea oil and gas will kick off and there will be a speed up in deployment of clean energy, renewable and nuclear generation with the aim to produce 25% of energy from nuclear in the longer term.
The fracking moratorium will also be lifted with development with drilling subject to local community approval.
As a consumer, this is what it means for you:
1. How much will I pay?
You will still pay for the gas and electricity you use. But the government's Energy Price Guarantee will limit the price that suppliers can charge for each unit of energy.
For a typical household - one that uses 12,000 kWh (kilowatt hours) of gas a year, and 2,900 kWh of electricity a year - it means an annual bill will not rise above £2,500 from October. Without this intervention, that annual bill would have been £3,549 a year. Last winter it was £1,277 a year.
However, if you use more gas or electricity than that, you will pay more.
The energy price guarantee will last for two years.
2. Will I have to pay it back?
Not directly on your bill or taxes. However, the government is paying for this by borrowing the money. That adds it to the pot of national debt. The prime minister says the cost will be outlined later this month.
In time, that could be paid for through taxation, but at the moment the government will borrow the money on international markets and pay a premium as a result.
So-called "green levies" will be moved off bills, and again paid for through borrowing.
3. Will I still get cost-of-living payments?
Yes, these can amount to hundreds of pounds this winter. So far, a first instalment of £326 has been paid to low-income households on certain benefits and tax credits.
There is also a £400 discount on bills for all households over the winter.
These payments will only be paid this winter, under current plans, whereas the cap will be in place for two years. So, there will be an effective rise in what householders pay next winter.
4. Caps do not cover Northern Ireland. What happens to those household bills?
The government says that the same level of support will be provided to households in Northern Ireland, as it is in the rest of the UK. However, this will require legislation.
5. I use heating oil, what about me?
The prime minister said a fund will be created to support those who are not covered by a cap, but she did not say how big that fund would be.
This includes people who use heating oil in their homes, those who have communal heating schemes, and people in mobile home parks who pay the park owner rather than a supplier.
More details will come later, but this will be an extremely complex task.
For example, people in park homes do not yet know how they will receive the £400 discount available to everyone - and that was announced months ago.
The government has not said how big this fund will be or how long it will take to organise.
6. I have a fixed deal - can I get out of it?
Fixed deals allow you to pay for energy at a set rate for a set period of time, but you are locked in. Plenty of people whose fixed deals have expired in recent months may have considered fixing again, given the outlook of rising energy prices.
This has been an extremely expensive option, but one which some understandably chose to take given the eyewatering forecasts of soaring bills.
The prime minister did not mention fixed deals in her statement.
However, it is understood that suppliers are being asked to discount current fixed deals or allow customers to transfer to the cheaper variable deal without a penalty.
If you fixed within the last 14 days, you can cancel without charge.
7. What support is there for small businesses?
Businesses will get support, with bills capped for six months, a shorter period of protection than many had hoped for. This support will focus on businesses on variable deals, or whose contracts are soon to come to an end.
Source: extracts from BBC news and other professional accountancy journals
