Rishi Sunak will give millions of households a £200 discount on their energy bills – as prices soars to record highs – but crucially it’s a loan not a gift and has to be paid back.
Last week, Ofgem announced that its energy price cap would be increasing by 54 per cent or almost £700 per household, after the wholesale cost of energy quadrupled last year.
The new cap will see the 22million customers currently on default tariffs pay a maximum of £1,971 per year.
The £200 payment will be automatically given to all eligible UK households in October. However, some customers have said they do not want to receive it, because they’d rather not have money they then have to pay back over years.
UK households will be given a non-optional, repayable £200 rebate on their energy bills
The rebate will need to be paid back in installments from 2023, and some customers have said they would prefer not to incur this debt.
Others have said they can manage the higher bills, and would rather the money was given to households who really needed it.
Meanwhile, experts have pointed out that the payment is ‘a loan, not a gift’ and said that, given the wider cost of living crisis, more support may be needed for low-income households.
They have also said that the repayments may result in an ‘even larger burden’ for households, should energy prices not start to fall by 2023.
This is Money explains how the £200 discount will work, whether it can be refused and how much of an impact it is likely to have for households.
What is the energy bill discount?
The plans for the £200 repayable discount – also being referred to as a rebate – were announced on 3 February, straight after Ofgem raised the price cap.
Every eligible British household will get an upfront £200 discount on their energy bill in October.
The discount will be automatically applied to customers’ bills, and there is no way to opt out
The discount will be automatically applied to customers’ bills, and there is no way to opt out.
However, the money will need to be paid back in installments over five years, starting in 2023.
Sunak said the previous price cap had been keeping bills ‘artificially low’ and that this had led suppliers who couldn’t afford to meet the rising wholesale costs to collapse.
The £200 rebate announced by Rishi Sunak last week will kick in from October
He said: ‘It is not sustainable to keep holding the price of energy artificially low. For me to stand here and pretend we don’t have to adjust to paying higher prices would be wrong and dishonest.
‘Without government intervention the increase in the price cap would leave the average household having to find an extra £693.’
Instead, the typical household will effectively need to find an extra £493 now, before paying back an additional £200 over five years from 2023.
Also on 3 February, the government also announced a £150 council tax rebate for the 80 per cent of households in bands A to D.
When will customers need to pay the money back?
The £200 rebate will need to be paid back in five annual installments of £40, starting in 2023.
The deductions will also be automatically applied to energy bills from 2023, and customers do not need to act to pay back the loan.
The £40 instalment plan will be applied to every energy bill in the coming years, regardless of whether the household received the £200 rebate.
This means that new bill-payers, such as students or young adults moving out on their own for the first time, will still be required to pay the £40 extra per year on their energy bill from 2023.
Mounting bills are an increasing concern for customers due to surging wholesale gas prices
Can I turn the money down if I don’t want or need it?
The £200 energy bill rebate is not optional, meaning that every eligible household in the UK will have the lump sum deducted from their energy bills in October.
A number of Britons have expressed their concerns about the rebate, and even gone as far to request Sunak not to apply the ‘energy levy’ to their upcoming bills.
Energy customers on Twitter have vented their frustrations at the government’s plans, with some claiming they don’t need it and others suggesting it would be better off going to lower-income households.
Others have tweeted directly to Rishi Sunak to request that they not be included in the mandatory rebate scheme.
Households will need more help, say energy experts
Richard Neudegg, the head of regulation at energy bill comparison service Uswitch, said that while the energy bill rebate and council tax refund were welcome, the government needed to provide more help for those on lower incomes.
He said: ‘The £200 energy bill credit will be a useful boost for households in a time of crisis, but this won’t be implemented until October when energy bills may be even higher.
‘Make no mistake, customers will have to find the funds to pay for it over five years – this is a loan, not a gift.’
He added: ‘Households are facing cost of living challenges from all sides, including increases to National Insurance, interest rates, and even broadband and phone bills.
These measures are of course better than nothing, but they are sticking plasters on a challenging year ahead for households
Richard Neudegg, Uswitch
‘These measures are of course better than nothing, but they are sticking plasters on a challenging year ahead for households.
‘We urgently need the Government to now look again at how they can ensure proper help is directed to those who need it the most in time for next winter.’
Other energy experts have said that the extra £40 payments could prove an additional burden for households come 2023, in the event that energy prices don’t come down before then.
Tashema Jackson from Energy Helpline said: ‘While £200 off your energy bills in the short term is nothing to be sniffed at, it will make just a small dent to family budgets.
‘For many, being saddled with this additional debt on the basis that you will have to pay it back in the future, will feel a bit like robbing Peter to pay Paul.
‘Should prices come down, it will offer some relief to hard-up families and help them spread the cost over a longer period of time.
‘However, if prices remain high – like they are currently projected to for the next 12 months or so – it may add an even larger burden onto energy prices next year.’
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