Martin Lewis has warned people confused by the announcement of a £2,500 cap on energy prices that this does not mean people will not pay more than that if they use a lot of gas and electricity.
On Thursday, Prime Minister Liz Truss announced what she called a "two-year energy price guarantee" that will cap the cost of the average household's energy bill's at £2,500 for the next two years. It is expected to cost up to £150bn on Thursday in a bid to tackle soaring energy costs in the UK.
The new figure replaces the old Ofgem price cap which had set energy prices at a level at which the average household would pay £1,971 year since the spring. It had been set to rise to £3,549 on October 1 but will be instead replaced by the new Liz Truss price cap for an average home at £2,500 or just over £200 a month.
While Ms Truss' announcement will be good news for millions of people worried about how they will pay their energy bills this winter, it does not mean everyone will pay less than £2,500 per year. Here is exactly how it works and why you might still pay more than that under the new plans.
Read more: Martin Lewis explains what Liz Truss' plans to tackle energy bills mean for you
The new price guarantee will work similarly to the old price cap, which had been set every six months by energy regulator Ofgem. The energy price cap limits the maximum amount suppliers can charge for each unit of gas and electricity you use and sets a maximum daily standing charge (what you pay to have your home connected to the grid). So the word 'cap' refers to the price of each unit of energy not the total price for a household as there is no upper limit on what customers pay. The more energy you use the more you pay and vice versa.
The figure that is quoted as the price cap is based on the average amount of gas and electricity used by homes in the UK. So the average home will pay £2,500 over the course of a year. They will also the previously announced £400 rebate to take this down to £1,900. But if you have a larger home, a less-well insulated home or use energy intensive equipment at home then you could still be paying significantly more.
Money Saving Expert Martin Lewis reiterated this point in his summary of the new energy plans on Thursday, saying: "This will be a cap on standing charges and unit rates, so use less, you pay less, use more, pay more (I'll publish the rates when I have them). There is no total cap on what you pay, the typical rate is just a figure for illustration." Most companies have yet to announce their new rates from October 1, when the guarantee comes into effect, but customers are likely to be told these in the coming weeks.
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