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Liz Truss's energy bills price cap freeze: What does it mean for me?

Liz Truss has delivered a plan to freeze energy bills less than 48 hours after taking on the top job
Liz Truss has delivered a plan to freeze energy bills less than 48 hours after taking on the top job

Liz Truss has announced plans to limit energy bill rises to £2,500 for the next two years, spending billions to protect UK households from soaring prices.

The price cap was due to jump 80% from October to £3,549 a year, threatening to drive millions of families into poverty and deepening the cost of living crisis.

Energy prices will be frozen for two years, Liz Truss has announced (Yahoo News UK/ Flourish)
Energy prices will be frozen for two years, Liz Truss has announced (Yahoo News UK/ Flourish)

Liz Truss’s energy bills freeze explained in nine points

What is the main idea? Under Truss’s plans, a typical household will now pay no more than £2,500 a year on their energy bill for the next two years from 1 October, through a new "Energy Price Guarantee" which limits the price suppliers can charge costumers for units of gas.

This takes account of temporarily removing green levies, worth around £150, from household bills.

How much will it save me? This will save the average UK household £1,000 a year based on current energy prices from October.

It comes in addition to the announced £400 energy bills discount previously announced.

How will it be funded? The intervention will initially be funded by the government, with the Treasury set to publish an update on the 2022-2023 gild financing remit lather this month.

Kwasi Kwarteng, Truss's chancellor, has opened negotiations with UK and international gas suppliers, with the aim of securing lower cost gas contracts.

But further details on the Energy Markets Financing Scheme, including the total cost — which could hit £130bn — will only be announced later in the future.

What about those in park homes or heat networks? Those households who do not pay direct for mains gas and electricity — such as those living in park homes or on heat networks — will not be worse off as they will receive support through a fund.

What about businesses? A new six-month scheme for businesses and other non-domestic energy users — including charities and public sector organisations like schools — will offer equivalent supports is being provided for consumers.

Only six months? For businesses, after this initial six-month scheme, the government will provide focused support for vulnerable industries, only.

There will be a review in three months' time to consider where this should be targeted to make sure those most in need get the support.

Are the energy suppliers okay with this? The government will provide energy suppliers with the difference between this new lower price, and what energy retailers should charge their customers were this not in place. Schemes previously funded by green levies will also continue to be funded by the government during this two year period.

The Treasury and the Bank of England will launch a £40bn scheme to ensure energy firms are not hit by a liquidity squeeze amid volatile markets.

What if Russia cuts off gas supplies? The government said it is 'learning from the mistakes of the past' so it is taking action to accelerate domestic energy supply, increase the country's energy resilience and make the UK an energy exporter by 2040.

What about the windfall tax? There are some measures that would offset the overall cost, including the £5bn windfall tax on North Sea oil and gas producers announced by the government earlier this year.

However, Truss told MPs she would not approve another windfall tax to pay for the cost of living support for struggling families meaning this revenue will only cover a small amount of the plan.

Watch: Why are gas prices rising?