Around 28 million households in England, Scotland and Wales will receive a £200 upfront discount towards their electricity bill under plans announced by the government to tackle rocketing energy prices. Around 80% of households England will also benefit from a council tax rebate of £150 in April.
The news comes as the energy regulator Ofgem set its latest energy cap at £1,971 – up from £1,277. This is an increase of 54% and means gas and electricity users will pay around £700 more per year when the cap kicks in.
But the shocking rise has left many people worried that they will not be able to afford this – alongside the rising cost of living.
According to debt charity StepChange, the cost of living pressures entered the top five reasons for debt among people turning to StepChange for help in November 2021, and remained there in December with 8% of new clients citing it.
Here’s everything you need to know about the new measures.
£200 Energy bill payment
Households can expect to receive a £200 discount applied to their electricity bill in October this year. But there is a caveat – you have to pay it back and you can’t opt out.
The £200 will be automatically applied by your energy supplier, and paid for by the government. The repayment will then have to be made in instalments of £40 over a period of five years starting in 2023, at which point energy prices could ease if wholesale gas prices come down as expected.
“This will take some of the pain out of the immediate price rise, but will mean higher prices for longer – so energy bills are set to eat a bigger chunk of our income for years,” Sarah Coles, personal finance analyst at Hargreaves Lansdown says.
Sunak said the upfront discount aims to help families with rising global energy prices and the cost of living pressures, where even those on middle income are feeling the pinch.
Northern Ireland households can also expect to get comparable funding through the Barnett formula next year.
£150 Council tax rebate
As well as an upfront discount on energy bills, households in England that are in council tax bands A-D, will receive a £150 rebate.
The payments will be made by local authorities directly from April 2022 and it does not need to be repaid.
Around 80% of homes in England are expected to benefit from the one-off payment.
The government has also put aside a £144m discretionary funding pot to help vulnerable people or those on low income who do not pay council tax or pay tax for properties in band E-H.
The council tax system is different in Scotland, Wales and Northern Ireland. Devolved governments in Scotland, Wales and Northern Ireland are expected to receive around £565 million of Barnett funding instead.
Warm home discount
The Warm Home Discount has also been expanded to include a wider eligibility criteria, which means at least three million households on low income or certain benefits could get the additional payment.
The Warm Home Discount usually pays you £140 towards your energy bill, but you will now benefit from a £10 uplift, taking it to £150.
You can check to see if your provider is part of the scheme at gov.uk. Some major providers have now closed their doors to the scheme for 2021/22 – so, if your supplier is still accepting applications, then apply as soon as possible to avoid missing out.
What can you do to keep your energy bills low?
Although you can’t do much about the price increases, you can make small moves to keep your bills as low as possible.
For example, switching to direct debit payments is worth doing as it could save you as much £130 a year. This is because energy suppliers charge you less if you pay in that way.
According to the Office for National Statistics, 32% of UK households are trying to use less energy. If you aren’t one of them, then turning your thermostat down by one degree or switching radiators off in rooms that you are not using can make a big difference.