Energy bills rebates: Government loan and council tax rebate explained as price cap rises - who is eligible?

The price of the average energy bill is set to increase in the UK from April, after Ofgem announced its new price cap

Energy bills are set to rise for millions of people from April after industry regulator Ofgem announced a new price cap on Thursday (3 February).

The increase comes as the UK battles a severe cost of living squeeze that has seen the price of goods and services, including the average household shop, skyrocket.

In a bid to limit the squeeze on people’s budgets, the Government has announced support measures, including a council tax rebate for millions of households and what is essentially a loan scheme for energy bills.

So how exactly will this energy bills plan work - and how much will households get?

Here’s what you need to know.

How much are energy bills going up by?

Energy regulator Ofgem has said the energy price cap will rise to £1,971 from the start of April 2022.

This marks a 54% increase - equating to £693 - in energy costs for the average household compared to the previous cap.

For customers with prepayment meters the price cap will go up by £708 to £2,017, the regulator said.

Energy costs have soared due to a combination of factors, including a cold winter last year and geopolitics (image: PA)

The changes primarily affect those who are on their energy supplier’s default tariff, but will lead to price dynamics that will impact 22 million households across the UK.

Ofgem has been forced to raise the energy bills cap because wholesalers are facing massive cost increases stemming from a global squeeze on gas supplies.

What is the energy bill rebate the Government has announced?

Speaking in the House of Commons today (3 February), the Chancellor Rishi Sunak said he wanted to “take the sting out” of the rise in household bills by providing people with a financial support package covering council tax and energy bills.

For energy bills, Mr Sunak said all households would get a £200 up-front rebate on their energy bills from October.

Energy bills support will be combined with a council tax rebate for poor and middle-income households (image: PA)

The Government will stump up the cash for the move - loaning it to energy suppliers - but will recoup the money by hiking bills by £40 a year for the next five years from 2023.

It means that, if all goes to plan, households will not see a sudden hike in bills but would absorb the costs over a period of time - although this is dependent on wholesale energy prices falling in future.

To complement the new measures, the Treasury has also announced a council tax rebate for many English households in April.

Mr Sunak will lay out his latest pledges to the public in a Downing Street press conference at 5pm.

What has been the reaction to Rishi Sunak’s announcement?

Some energy company insiders told the PA news agency that while good in principle, the policy is too reliant on falls in global gas prices.

Experts are not sure this will happen, at least not soon, and Goldman Sachs has already warned that prices in the gas market are likely to remain at twice their usual levels until 2025.

Reacting in the House of Commons, Labour shadow Chancellor Rachel Reeves said Rishi Sunak’s support equated to a “buy now, pay later scheme that loads up costs for tomorrow.”

She said: “By lending billions of pounds to energy companies, the Chancellor is gambling that prices are going to fall – but they could go up further in October. What then? Billions more loaded onto people’s bills?

“The best way of targeting support to those who need it most would be an increase to £400 and an extension to 9 million households of the warm homes discount, as Labour has proposed today.”

Meanwhile, fuel poverty charity National Energy Action (NEA) described the Government’s plans as “woefully inadequate” given the cost of heating an average home will have doubled in 18 months.

It warned that the number of people in fuel poverty would soar from four million to 6.5 million households across Great Britain in six months.

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