An “Energy Price Guarantee” to limit how much households in Britain will pay for their energy will come into effect from October 1.
Liz Truss pledged households will “now pay up to an average £2,500 a year on their energy bill for the next two years.”
That includes a £400 per household Energy Bill Support Scheme already announced, with green levies of around £150 also being temporarily removed.
Ms Truss said the move would save the average household in England, Wales and Scotland at least £1,000 a year.
The same level of support will be made available to households in Northern Ireland.
But what does the new help package mean for you? We explain what you need to know.
Q: So that means I won’t pay more than £2,500 for my energy for the next year?
A: No, that’s not right. Your bills won’t be frozen.
Instead, the guarantee is on the unit rate charged for gas and electricity, so the amount you pay depends on your usage, how you pay your bill (eg, by direct debit or by cash or cheque), and where you live in the country.
Q: What is a typical household anyway?
A: Regulator Ofgem says it one using 12,000 kWh (kilowatt hours) of gas a year, and 2,900 kWh of electricity a year.
Government figures suggest an average energy bill for a purpose built flat is £1,750, £2,350 for a mid-terrace house, £2,650 for a semi-detached house, and £3,300 for a detached house.
Q: So should we breathe a sigh of relief?
A: It means October’s feared energy price cap surge won’t go ahead as planned.
But it is important to remember that prices are still sky high compared to where they were.
Last winter, bills averaged £1,277 a year.
Plus, households are still being hit with surges in other bills, including food.
The Joseph Rowntree Foundation says the average low income household is set to get a total £2,100 worth of help with their energy bills - including initiatives from earlier this year.
But its analysis found that is not enough to meet rising energy and other costs – around £2,900 in total – leaving a gap of around £800 that these families will have to find.
Q: What is the ‘discount’ for the unit cost - what are the rates?
A: We are still waiting to hear what this is, although it could possibly be the same as Ofgem’s price cap rates in April.
Q: I’m on a prepayment meter, how does it impact me?
The government gave no specific details at this stage.
The Resolution Foundation estimates that prepayment meter customers will still need to find £264 to cover January’s peak usage, albeit down from £550 had the government announced no more support.
Q: I’m on a fixed rate tariff, does it impact me?
A: This is another important question for which we don’t have a definitive answer from the Government.
MoneySavingExpert founder Martin Lewis has said the discount that is being applied to price cap tariffs is likely to be applied to all tariffs, including fixes.
He had previously put a tweet out saying Government officials told him "all can get out of a fixed tariff without exit penalties" but it is unclear if this has now changed.
Q: I switched to pricey fixed rate tariff in recent months for fear the price cap would surge, can I now get out of it?
A: Again, there is no answer from government on this.
However, most fixed rate deals have charges for cancelling them early.
Q: I pay my energy to my landlord, will I benefit from the new limit?
A: Yes, your landlord should pass it on.
Q: I use heating oil. The cost of that has soared, so will I see my bills now capped?
A: The Government has indicated there will be help, but gave no specifics.
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.
Consumer champion Martin Lewis said he understood there would be discretionary payments.
Q: Will the other half of the £650 payment for those on benefits still be paid? And what about the £150 to those on disabilities and the £300 for pensioners?
A: Yes, that seems to be the plan.
Q: Will these payments - or something similar - be in place next winter? The Energy Price Guarantee is in place for two winters, after all.
A: There is no certainty of that.
Q: Has VAT on energy bills been ditched?
A; That was not in the announcement but could yet be included in Chancellor Kwasi Kwarteng ’s forthcoming fiscal statement.
Q: How will the discount scheme work in practice?
A: Regulator Ofgem’s price cap for a typical dual fuel customer paying by direct debit was due to leap by 80% in October, taking an average bill from £1,971 to £3,549.
That now won’t happen.
Instead, the government will pay suppliers the difference between the average £2,500 (made up of the £1,971, the £400 and the green levy) and the £3,549 - roughly £1,000 a year per customer.
Ofgem will announce a new price cap in January - expected to be even higher because of soaring wholesale energy prices.
Suppliers will get back the difference between the current unit price for energy and that new price cap.
Experts have estimated the cap would rocket to £5,387 a year in January, then £6,616 next April.
The same will happen every three months, when Ofgem reviews the cap.
Q: What was announced for businesses?
A: The Government was a lot more vague.
Liz Truss said firms, as well as charities, schools and others, will be offered “equivalent support as is being provided for consumers.”
Unlike for households, the scheme has been set-up for six months.
After this initial six-month scheme, the Government will provide “ongoing, focused support for vulnerable industries.”
There will be a review in three months’ time.
Q: So how will it work?
A: A very good question, and one government officials seemed unable to answer.
Sources said the details would be ironed out in the coming days.
However, it is likely to involve a cap on the unit rate firms and others pay - just like for households.
Q: What’s been the response from businesses?
A: They’ve broadly welcomed the promise of help, but are keen to see the details.
Martin McTague, national chair of the Federation of Small Businesses, said: “The announcement is very high-level and sparse on detail so we will be working with the new Government to clarify what happens next. Small businesses’ instant reaction is that this is not enough information, yet, for them to plan.”
Q: So, how much will all this cost?
A: The Government isn’t saying.
Chancellor Kwasi Kwarteng will set out the expected costs as part of the fiscal statement later this month.
But the truth it doesn’t know, because the cost depends on what happens to wholesale energy costs over the next couple of years.
Freezing prices now, and ditching October’s planned hikes, would cost the equivalent of £54billion over the next couple of years.
But that’s before the forecast price hikes in January and April, meaning the bill could reach £120billion for households alone.
Plus, there is the cost of shielding companies from price surge - some of which were facing bill hikes of up to 1,000%.
Some estimates have put the cost at £150billion, in reality it amounts to a blank cheque.
Q: Who pays for it?
A: Having rejected calls for a new windfall tax on energy firms, it seems the cost will come from additional borrowing.
Q: Why doesn’t the Government tax those firms that have made a fortune from soaring prices?
A: That is what Labour and many others have argued.
Liz Truss rejected the idea, claiming it would deter investment by energy producers.
She says that investment is vital now to ensure we can become more self-sufficient in energy in years to come.
But critics say that ignores the excess nature of the profits industry giants have raked in.
Q: So, no windfall tax and a green light for producers to ramp-up drilling for oil in the North Sea?
A: That’s right. Part of the announcement was launching a new oil and gas licensing round as early as next week, expected to lead to over 100 new licences.
As one industry insider put it, energy giants will be “swinging from the chandeliers”.
Q: What will the price freeze mean for inflation?
A: Soaring energy prices are one of the reasons inflation has already hit a 40-year high.
October’s planned hikes were set to drive inflation even higher, with the Bank of England forecasting it would top 13%.
By not going ahead, it will take some of the heat out of inflation.
The Government predicts to will curb inflation by four to five percentage points.
That matters for a whole host of reasons.
With inflation peaking lower, it might improve flagging consumer confidence.
It could also impact wage negotiations.
And, for the Treasury, it will mean shelling out less than feared - potentially £25billon - in interest on the nation’s debts.
Q: Will what’s been announced impact my other bills?
A: Extra government borrowing and spending is likely to lead to higher interest rates from the Bank of England.
That means bigger bills for millions of mortgage borrowers who are on variable rate deals, those taking out a new home loan, or remortgaging.
It could be good for savers, if providers pass the increases on.
Q: Why two years of help for households, why not longer?
A: Much depends on what happens to wholesale energy gas and electricity prices, and that is hugely dependent on how long Russia ’s war in Ukraine continues.
The conflict is the main reason why wholesale prices have soared.
The other element of the Government announcement was about trying to make the UK more self-reliant on energy, and less on imports.
So that means more nuclear, renewables and - controversially - fracking.
Q: Talking of fracking, what was announced?
A: Lifting the moratorium on UK shale gas production, enabling developers to seek planning permission “where there is local support”, which could get gas flowing in as soon as six months, the government said.
Mike Childs, head of science, policy and research at Friends of the Earth, said: “The government’s energy plan is farcical in its detachment from reality.
“It does nothing to tackle the root cause of the energy crisis – our reliance on costly, polluting fossil fuels – and only lines the pockets of the oil and gas companies driving the cost of living and climate emergencies.”
