Energy price cap October 2022: when does it start and what does it mean for your bills?

Liz Truss - Andrew Parsons / No10 Downing Street
Liz Truss - Andrew Parsons / No10 Downing Street

Prime Minister Liz Truss has frozen average energy bills at £2,500 a year for two years in a bid to protect all households from soaring gas and electricity prices.

Without intervention, the average household energy bill would have jumped 80pc next month – from £1,971 to £3,549 a year.

Now, average bills will be capped at £2,500 from October 1 until 2024, the same year the next General Election is scheduled to take place.

The package will likely be funded by government borrowing and not by increasing household energy bills in the future.

Here, the Telegraph details everything you need to know.

What is the price cap?

The energy price cap has historically been set by the regulator, Ofgem, and dictated the amount energy suppliers can charge customers on their standard variable tariffs.

It sets limits on unit charges for both gas and electricity and also the standing charge. This is then extrapolated by multiplying this by how much energy the average household uses in one year to come up with the annual price cap.

When does the energy price cap change?

Until October 1, the cap is set at £1,971. It was then expected to rise to £3,549 and rise again on January 1 and April 1 next year. However, it will now be frozen until 2024.

What is the government energy price guarantee?

The Energy Price Guarantee will ensure that a typical household in the UK will pay an average £2,500 a year on their energy bill and that from Oct.1, this will be fixed for the next two years.

How does the energy price cap work?

The energy price cap limits the rate a supplier can charge for their default tariffs - including the standing charge and price per kWh of electricity and gas.

However, it does not cap your total bill as this depends on how much energy you actually use.

Does this mean I will not pay more than £2,500 for my power?

As the price cap is a limit on the average bill, customers can pay far more, or much less, depending on their usage. This is because the cap restricts the rates suppliers can charge customers for energy usage.

The cap includes standing charges, which are billed to consumers at a daily rate regardless of their energy use, and unit rates, which are charged to households for every unit of gas and electricity they consume.

Will I still get the £400 rebate?

Every household in the UK will still receive the £400 payment from the Government as part of the cost of living support package, which Rishi Sunak devised while he was still Chancellor.

This money is a one-off payment that will be deducted from households’ energy bills automatically and is non-repayable.

The £2,500 figure cited by the Prime Minister's team takes this rebate into account, hence why it has been set higher than the £1,971 price cap.

I’ve recently locked into a fixed deal – will I miss out?

In response to earlier projections that the price cap could rise to £6,616 next year, some households signed up for fixed rate deals to protect themselves from further price rises.

However, now average bills have been frozen at £2,500 from October 1, customers on fixed-rate deals will likely be paying a far higher rate for their energy use than they would on a standard variable tariff. Customers can leave a fixed-rate deal before the term is up, but some come with exit fees of up to £300.

The Energy Price Guarantee will include support for those on fixed rate deals in the form of a discount on the unit rates for electricity and gas respectively. This means households on fixed rate deals will pay 17p/kWh less for electricity and 4.2p/kWh less for gas.

The discount will not bring the unit price below a ‘floor’ of 10.3p/kWh for gas and 34p/kWh for electricity, however, meaning those who locked into cheaper deals below the price cap some time ago will not see any change.

Will this mean I have to pay higher energy bills further down the line?

Under proposals made by certain energy providers, households would have paid inflated energy bills over the next decade, as a means of spreading the cost of freezing the cap at its current levels. However, Ms Truss's team has said the bailout will be funded through government borrowing.

The details of how taxes would fund the policy have not yet been revealed.

Does this mean my direct debit will fall?

Most households pay for their energy via direct debit. The payments are set by suppliers and based on your estimated energy use over the course of a year.

If the £2,500 limit means your direct debit payments are too high, you will build up credit with your provider that you can use at a later date. Your supplier should notify you before making any changes to your payments.

What if my home uses heating oil?

Homes that use heating oil or are "off-grid" will receive support through a fund. On September 21, the Government confirmed this would take the form of a £100 payment, in addition to the £400 rebate.

I am on a pre-payment meter – does this apply to me?

Some households pay for their energy bills on a pay-as-you-go basis, where they regularly top up their meter with credit.

These meters can be topped up with a maximum amount of credit using electricity keys and gas cards, both of which can hold a finite amount of money.

The rates at which prepayment meter customers are charged are fundamentally the same for those paying via direct debit, however, should their meter run out of credit they will not be able to use any energy.

Will businesses get any help?

Businesses will receive support for six months to help with energy bills and then the Government has promised targeted support for the following three months.

Jacob Rees-Mogg confirmed on September 21 that the Government will cap how much companies can be charged for energy amid concerns that thousands could collapse without further help.

The move caps bills at £211 per MWh for electricity and £75 per MWh for gas – less than half the expected cost this winter – and removes green levies.

The measures, which will be applied directly to bills, will begin in October and last for six months.