Phil Kelly, Aspire's Money Matters Specialist writes:

You may be aware that the government have recently announced a range of support measures to help households cope with energy price rises currently being experienced in the UK.

The Q&A below may help bring some understanding to the situation although at this stage full details of the government measures are yet to be confirmed.

I have heard the energy price cap is rising, what is this and when will it rise?

The energy price cap sets a limit suppliers can charge for each unit of gas and electricity you use along with a limit on the daily standing charge (to have your home connected to the grid). Ofgem (the regulator) currently sets the cap twice a year based on the wholesale cost of energy paid for by the suppliers.  Ofgem have announced the cap will rise on 1st April 2022 by 54% for those on standard or variable tariffs; those on ‘fixed’ tariffs are not affected however the majority of people are due to come off fixed tariffs in the coming months if they haven’t already done so.

Why is the energy price cap going up by so much?

Mainly due to world events  - from a surge in need by economies emerging from Covid to political instability from some countries controlling large supplies. Basically, the providers are paying a lot more and need to pass the costs to consumers as they cannot trade at a loss.

I am currently on a variable rate and you have said the price cap will rise by 54%, does that mean this is the maximum I will pay?

You need to be careful as there is no maximum you can actually pay on energy as the more you use the more you pay. What is actually capped are the gas and electric prices per kilowatt unit and any standing charges, so it is important to manage your energy usage as effectively as possible.

What support is being offered by the government to help households manage their bills?

A number of support measures have been announced, although final details have not been finalised.  An outline of those are listed below:

1) £150 Council Tax Rebate: in England homes in council tax bands A-D will receive a Council Tax rebate of £150 paid from April 2022 to help with the rising cost of energy. This includes any households qualifying for council tax support but is unclear if includes ‘renters’ who do not pay Council Tax but do pay for energy. The rebate does not need to be repaid.

The devolved countries, Scotland, Wales and Northern Ireland have been awarded a similar amount of funds and will decide how best to allocate payments.

In most cases you do not need to apply for the rebate as the local authority will transfer the money to your account using your direct debit details.

For those not paying by direct debit local authorities have been asked to obtain bank details so the payment can be made.

2) £200 October Energy Bill Rebate: in or around October 2022 every electricity energy bill will be reduced  by a flat £200 (it may be paid over a few months and not in one go). Pre-pay users will get the money via their smart meter, voucher, cheque or similar.

From April 2023 every electricity bill will have £40 added to it and will continue over 5 years to repay the original £200.

It isn’t about individuals or households, it’s about BILLS and all future bills will have £40 added each year even if the person did not originally receive the £200. For example a young person living at home not paying energy bills won’t directly benefit from the £200; should they rent or buy their own place after October and start to pay energy bills they will have the £40 added each year to their bill. Conversely someone could get the £200 and for whatever reason stop paying energy bills; in this case they would not be paying back the £40 each year.

3)  £144 Million Discretionary Fund: some homes may be exempt from Council Tax, such as living accommodation for some students and nurses, and won’t get the £150 rebate. In England the government have set aside £155 million allocated to local authorities to use on a discretionary basis to support those who may slip through the net, although eligibility criteria is still to be announced. It may include those on low income and those in Council Tax bands E-H who are struggling (similar funds are to be made available in the devolved nations).

4)  Warm Home Discount Increase: the Warm Home Discount benefit is normally paid to some on pension credit or low incomes and will be increased from £140 to £150 a year. Plans are in place to extend eligibility to more people, although no criteria has been announced, but is likely to be aimed at those on means tested benefits.  Applications can be made to your energy supplier but are on a first come first qualify basis and each year, once funds are used up, the scheme closes. Contact your energy supplier and regularly review their website for updates.

Apart from energy if you have any concerns paying any bills or commitments such as water, council tax, credit , loans, rent or mortgage always talk to your provider as soon as possible so that can work with you to overcome difficult times.

During 2022 we'll be giving you regular updates on the energy situation including news on additional government support that may be put in place.

If you need any further help or just want to talk things through Aspire's Money Matters offers free impartial guidance to people affected by Spinal Cord Injury about effective budgeting, keeping control of finances and, where needed, help to become debt free.

For free and impartial guidance call our Money Matters Specialist on 020 8420 8960.

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