The United Kingdom's new Prime Minister, Liz Truss, has confirmed a new energy price guarantee.
This means that the price cap will be frozen at £2,500 from October 1. But keep in mind, in practice there is no cap on what you pay for energy - the 'cap' is what you pay on the standing charge and the rate per unit.
This new plan will limit the amount suppliers can charge for each unit of gas and electric - If you use more energy, you will have a higher a bill, if you use less, your bill will be smaller.
READ MORE: Liz Truss confirms energy price cap freeze at £2,500 amid cost of living crisis
The news comes as people across the country have shared their feelings after Ofgem set the price cap at £3,549 with experts, including Martin Lewis, urging the Government to intervene with many people being unable to pay their new bills.
The current price cap currently sits at £1,971, so the new lower price cap is still higher but every household in Scotland, England and Wales will receive a £400 energy discount which is being handed out in instalments throughout the winter.
Here's everything you need to know about new energy price cap and the situation this winter as gas prices are still high.
What's the current April-October price cap
The price cap will change on October 1, but currently the price cap for the average household who pays via Direct Debit is £1,971 per year. Meanwhile those on prepayment meter saw increase of £708 from £1,309 to £2,017.
Before Ms Truss announced her energy price guarantee plan on September 8, Ofgem were planning on rising the price cap for the typical household to £3549 and those on prepayment meters were expecting a yearly bill of £3,608.
What does the new energy price cap 'freeze' mean for you?
While the £2,500 is higher than the price cap is currently, it stops suppliers from charging a higher rate for energy for the next two years. This is significant as Ofgem recently said they would change the price cap every three months to reflect the fluctuating prices.
This left experts warning energy bills would hit £5,000 by January. However, Ms Truss' announcement today will stop that.
She says people will saving on average £1,000 with this new plan. However it has not been confirmed what the rate would be for those on prepayment meters or those who pay on standard credit.
There is also the £400 energy discount that is being handed out in instalments. This is still going forward and will reduce energy costs. Those who claim certain benefits will also have received cost of living payments of up to £600.
For businesses and other non-domestic users such as schools and hospitals, which have not been covered by the existing price cap, a six-month scheme will offer equivalent support.
Who will pay for the energy 'freeze' plan?
Ms Truss announced her plan in the House of Commons on September 8 and while it was welcomed, it was also scrutinised by the opposition. Not only did some MP's say £2,500 was still going to be tough for many, Labour Leader Sir Keir Starmer grilled Truss on how it was getting paid for.
As PA news agency points out, Downing Street has refused to put a cost on the programme, previously estimated to cost up to £150 billion. The Prime Minister’s official spokesman would only say the price will be “tens of billions” worth of borrowing.
The Prime Minister told MPs: “This is the moment to be bold. We are facing a global energy crisis and there are no cost-free options.”
Meanwhile, Sir Starmer argued that the cost would fall into the 'hard working' taxpayer's lap, focussing on the fact that Truss will not expand the windfall tax.
He cited estimates that energy producers could make “£170 billion in unexpected windfall profits over the next two years”.
He said: “The head of BP has called this crisis a cash machine for his company, and households are on the other end of that cash machine, their bills funding these eye-watering profits.”
He said he wanted to see the windfall tax expanded, but said: “The Prime Minister… wants to leave these vast profits on the table with one clear and obvious consequence: the bill will be picked up by working people.”
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