All UK households will receive £200 towards the cost of rising energy bills, but the amount will need to be repaid in full.
Ofgem today (Thursday) announced average gas and electricity bills will rise by £693 in April, a huge jump of 54%.
It is likely to put pressure on households, especially those that are less well off who spend a higher proportion of their income on simply keeping their homes warm and lights on.
READ MORE: Energy bills to rise by £693 as new price cap confirmed
The price hike comes amid a global energy crisis, with gas prices now around four times higher than they were a year ago.
The decision is likely to impact 22 million households across Great Britain, and applies to those who are on their energy supplier’s default tariff.
Shortly after the announcement, Chancellor Rishi Sunak promised to “take the sting out” of the price rises.
A scheme unveiled by the Government will see all domestic electricity customers given an "upfront discount of £200" on their energy bills.
Chancellor Rishi Sunak explained this will be automatically repaid from people's bills in equal £40 instalments over next five years.
The "discount" will ensure the Government is "not just giving support to people on benefits, as lots of people on middle incomes are struggling right now too".
Mr Sunak also promised a £150 council tax rebate for homes in bands A to D, something he said would cover around 80% of homes in England.
He also promised £144 million to councils to support vulnerable people.
“The price cap has meant that the impact of soaring gas prices has so far fallen predominantly on energy companies,” the Chancellor told MPs on Thursday.
“So much so that some suppliers who couldn’t afford to meet those extra costs have gone out of business as a result.
“It is not sustainable to keep holding the price of energy artificially low.
“For me to stand here and pretend we don’t have to adjust to paying higher prices would be wrong and dishonest.
“But what we can do is take the sting out of a significant price shock for millions of families by making sure that the increase in prices is smaller initially and spread over a longer period.”
Ofgem chief executive Jonathan Brearley said: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.
“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices – a once in a 30-year event – and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.”
Shadow Chancellor Rachel Reeves has slammed the plans as not being good enough and said the Government is "giving with one hand and taking it all back later".
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