Get all your news in one place.

100’s of premium titles.
One app.

Start reading

Get all your news in one place.

100’s of premium titles. One news app.

Start reading

Manchester Evening News

National

Dan Bloom & Kieran Isgin

What £2,500 price freeze means for customers and how it will be paid back

Liz Truss Ofgem Fracking

The government has announced that domestic energy bills will be frozen at £2,500.

Ofgem's energy price cap will be replaced with a new "energy price guarantee" in an attempt to ease the financial pressure many households face with their energy bills. Additionally, a similar scheme will be set up for businesses, schools, hospitals, and other public organisations and charities to "offer equivalent support", however, this will only last for six months.

Meanwhile, "vulnerable" industries will receive longer-term support that will be set out later following a review in three months to decide which sectors should receive the ongoing help. The government will wait on an emergency Budget later on this month to set out how much the new plan will cost - current estimates predict it could go up to £150 billion, the Mirror reports.

Liz Truss refused to give in to pressures from the opposition to impose a windfall tax on energy and oil companies and has instead announced that it will be funded by extra public borrowing, leaving the cost to taxpayers in the long run. Meanwhile, ministers will continue to bring in a £400 discount to energy bills which was announced by the previous government.

It means that the average household will pay close to the current £1,971 on their energy bills anuually. The Treasury also estimates that the measure will knock up to five per cent off inflation forecasts.

Furthermore, the fracking ban has been lifted with the government claiming that drilling for shale gas could start in as little as six months. Meanwhile, a new round of North Sea gas and oil licences, which are due to start next week, could see more than 100 new permissions granted.

Here's a breakdown of what the new announcement means for you.

What has Liz Truss announced for households?

The current Ofgem price cap of £1,971 which was initially expected to rise aboce £3,500 in October has been replace by a two year 'energy price guarantee' which will be frozen at £2.,500.

Green levies, which add around £150 a year to your bills, have also been removed for two years.

What other help will there be?

The government confirmed that households will still receive a £400 discount this winter. The Energy Bills Support Scheme will be rolled out over a six month period from October to March, 2023.

However, this support is not yet confirmed to extend for winter 2023/24 so you may have to pay more next winter.

Will my bill definitely rise no higher than £2,500?

No, the £2,500 freeze is not a hardcap on all bills and instead a cap on the average bill. Therefore, if your usage is higher than average, you will likely pay more than £2,500 due to how suppliers charge you based on unit of electricity or gas.

What about businesses, schools and hospitals?

Businesses, charities, and public buildings are not covered by Ofgem's price cap. However, the new six-month scheme provides the same amount of support as domestic consumers for six months.

A review in three months' time will decide where the support should be targeted by the government.

How will it work?

For households, the government will give suppliers extra cash to cut the cost of electricity and gas per unit. In exchange, they will keep prices and tariffs at a fixed amount.

However, it's somewhat more complicated for businesses as prices vary depending on the type of business. Under the scheme, the government will subsidise the price based on what suppliers say.

Where will it apply?

The scheme will apply throughout Great Britain, however, ministers say the government is working towards applying it to Northern Ireland also.

What will your bill be this winter?

It is not yet clear what the exact unit prices will be and it may vary depending on which property you pay bills for. The government believes your bills will work out at £3,300 a year for the average detached house.

That falls to £2,650 for semi-detached, £2,450 for end-of-terraces, £2,350 for mid-terraces, £2,450 for bungalows.

For converted flats, the average is expected to be £1,950 and for purpose-built flats, it’s set to be £1,750. Therefore, poorer people in larger, northern, colder homes will pay more than those in flats in the south.

Will anyone fall through the cracks?

For now, yes. But, the government is working on a separate fund to compensate on groups being left out.

People who rely on heating oil will only benefit from the electricity coverage of the pledge while those who live off-grid will completely miss out.

Meanwhile, people who live in park homes or on shared heat networks in flats will also miss out completely. Separately, those on pre-paid meters and standard credit will pay more than those on direct debit with no fund yet available to equalise bills.

What if I’m on a pre-payment meter?

Fortunately, you will pay less than you would have previously, but still more than if you were on direct debit. This is because the unit price will be reduced by the same cash amount, regardless of how you pay your bill.

How much will it cost?

The government is not yet sure how much it will all cost. It is currently predicted that the scheme could cost up to £150 billion but will depend on the wholesale cost of gas which fluctuates regularly.

Chancellor Kwasi Kwarteng will provide an estimate of the first three months' cost at an emergency Budget in the next fortnight.

How will we be paying it back?

The taxpayer will be indirectly paying back the money for the scheme because it is being added onto the national debt - which already stands at £2.4 trillion - the highest it's been since the 1960s. But, the Prime Minister claims that the scheme itself will cut the peak of inflation by five per cent due to bills going down.

That is, the cost of servicing our debt will be less extreme and the government will have more money. The government also claims it will cut the costs by negotiating long-term gas contracts and accelerating new sources of gas, such as fracking which has now been unbanned.

What is happening to fracking?

Three years ago, fracking was banned. But, this is no longer the case today and Liz Truss has said that work on it could begin in six months. However, she stressed this will only be done where there is local support.

Fracking involves extracting gas from rocks and breaking them up with water and chemicals at high pressure. The ban was implemented after experts said it was not possible to accurately model earthquakes.

Furthermore, the Tory manifesto pledged: "We will not support fracking unless the science shows categorically that it can be done safely.” But this seems to no longer be the case and the government is producing a report form the British Geological Survey.

It notes that more drilling is required to establish data on shale resources and seismic impacts.

What will happen in the North Sea?

Liz Truss said: “We will be launching a new licensing round which we expect to lead to over 100 new licences being awarded." She pledged today to ensure that the UK is a net energy exporter by 2040.

What is happening to green levies?

It is not entirely clear what will happen to green levies. The government claims it is suspending levies on bills which add around £150 a year.

However, it's also saying it will carry on spending the money that would have been raised by these levies to avoid the country missing its Net Zero targets.