In September 2022, the new prime minister Liz Truss announced the ‘Energy Price Guarantee’ scheme in response to the continued rise in the price of energy.

Under the scheme, which starts from 1 October 2022, a typical household in England, Scotland and Wales will pay an average of £2,500 a year on their energy bills. This price will be frozen until 2024.

You might have heard it being referred to as the October price freeze.

That’s because it will replace Ofgem’s initial October price cap that was set to come into force on the same day.

The good news is that the new scheme means typical households will now pay around £1,000 less than if Ofgem’s original October price cap had gone ahead. Part of this saving comes from the government’s decision to temporarily remove green levies, which is worth about £150 a year on average, from household bills.

Green levies are the social and environmental policy costs that make up part of our energy bills which support investment in renewable energy, help with social issues such as fuel poverty, or both, so it’s good that the government didn’t scrap these completely. These costs will be transferred to the Treasury.

The bad news is that £2,500 is still higher than the current maximum amount suppliers can charge anyone on a variable tariff paying by direct debit.

Here’s everything you need to know about how the Energy Price Guarantee will work.

It’s important to remember when you read in the media that “bills are being frozen at £2,500 per year” that this is slightly misleading. This figure is based on a typical or average household’s use.

Like the price cap, the Energy Price Guarantee sets the maximum price suppliers can charge households for a single unit of gas and electricity.

And, in common with the price cap, the Guarantee doesn’t set a maximum for your final bill for the year. The price of your energy bill will still depend on how much energy you use.

According to Ofgem, a ‘typical’ household uses 2,900 kWh of electricity and 12,000 kWh of gas in a year. If you use more or less than a typical household your bills will vary, but a typical household will save at least £1,000 a year (based on current prices).

So, from 1 October 2022, if you’re on a standard variable tariff paying by direct debit, the average unit price will be frozen at 34.0p/kWh for electricity and 10.3p/kWh for gas (including VAT).

If you’re on a fixed tariff and currently paying a higher unit rate for electricity and gas than the new price freeze maximums, you will see your unit prices reduced by 17p/kWh for electricity and 4.2p/kWh for gas from 1 October 2022.

The freeze will only apply to unit rates rather than standing charges, which will stay as set by Ofgem for October 2022. This means that for energy customers paying for variable tariffs by direct debit in England, Scotland and Wales, standing charges will work out at around 46p per day for electricity and 28p per day for gas.

The UK Government will pay suppliers the difference between the wholesale price for gas and electricity they pay and the amount they can charge customers.

The government will fund the scheme through increased borrowing. We won’t know how much the scheme is estimated to cost until the Chancellor gives a fiscal statement this month.

It will also be difficult for the government to know exactly the cost is as it will depend on how expensive gas becomes over the next 18 months.

You don’t need to apply for the scheme, and you don’t need to contact your energy supplier. For consumers in England, Scotland and Wales who pay for their energy through a monthly, quarterly or other regular bill, the Energy Price Guarantee will be applied to your bill.

The UK Government is working with Northern Ireland partners, including the NI Utility Regulator and NI energy suppliers, to make sure it can deliver the same level of support to consumers and businesses in Northern Ireland.

No, the Energy Price Guarantee will run alongside this discount (called the Energy Bills Support Scheme), so households will still receive the £400 discount on energy bills. The most vulnerable households will also continue to receive £1,200 of support.

If you have a pre-payment meter, the Energy Price Guarantee will be applied to the rate you pay for each unit of energy.

This means that the money you put on the meter will last longer than it would have under Ofgem’s original price cap, but the way this will happen hasn’t been confirmed yet.

Yes. If you’re on a fixed energy tariff, the Energy Price Guarantee will protect you in the same way that it protects those on standard variable tariffs.

If you’re on a standard gas or electricity contract (such as living in park homes or on a heat network), although you’re outside of the scheme, the UK Government has confirmed that these households will be no worse off and will get similar support through a discretionary fund. We’re still waiting to find out how you’ll receive this support. There hasn’t been confirmation on how this will happen yet.

Yes, Ofgem will continue to announce price caps every three months. These will still determine the maximum amount the energy providers can charge for a unit of energy in these time periods.

As the UK Government will be now paying for any excess in your bills under the guaranteed scheme, these caps will still be important in determining how much the scheme will cost the government – and ultimately taxpayers – in the years to come.

The UK Government is offering households in Great Britain a £400 discount off their energy bills from October 2022.

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