Energy companies will begin contacting domestic customers about the new energy tariffs – including information about fixed deals – within a few days.
The government says many of those on fixed deals will receive discounts equal to the support given to the price cap.
The relatively few people who choose to fix at expensive prices – energy prices are expected to continue to rise sharply – will still pay more than others.
The new bill will take effect on Oct. 1.
How the plan works
The government’s energy price guarantee announced on Thursday means price rises for 24 million households in England, Wales and Scotland will be subject to variable domestic energy tariffs.
Their bills are usually governed by price caps from regulator Ofgem – but the government’s new two-year plan replaces these arrangements.
This means the average unit price for dual-fuel customers paying by direct debit will be limited to 34p per kilowatt hour (kWh) for electricity and 10.3p per kWh for gas.
For a typical household – using 12,000 kWh of gas and 2,900 kWh of electricity per year – this means that the annual bill from October onwards will not exceed £2,500. Without this intervention, the annual bill would have been £3,549 per year.
However, the charity notes that many people will still struggle, as the typical household paid £1,277 a year last winter.
The total bill will still vary depending on a household’s actual gas and electricity usage and how they pay.
Some other households will receive the same discount – but that doesn’t mean their tariff will be exactly the same as the tariff on a cap variable deal.
Domestic customers may have chosen – prior to the announcement – to get ahead of expected future price increases by choosing a fixed tariff.
If that’s more expensive than the new cap price, then the government says those customers will get an equal discount.
To be precise, this means an automatic reduction in the unit price of 17p per kWh for electricity and 4.2p per kWh for gas – which equates to around £1,000 for households using gas and electricity in general.
This may still mean that households who choose the expensive fixed tariff pay more than those on the capped variable tariff – even after the discount.
They do not have the right to automatically cancel that fixed deal without a penalty unless they have registered within the last 14 days.
The Department of Commerce, Energy and Industrial Strategy said the switch “is ultimately a personal decision.
Suppliers will begin contacting customers in the coming days to explain what the changes mean for their specific tariffs and direct debit or prepayment fees.
There is still a need to develop a mechanism to achieve the government’s intention that households in Northern Ireland receive the same level of support.
Unlike households – where the unit price of gas and electricity is used to generate a typical £2,500 bill – there is no such mechanism for businesses, who enter into a large number of different contracts for gas and electricity depending on the intensity of use and the mix between the two.
Businesses still left in the dark
Last Thursday, the Prime Minister promised companies “equal support” for energy costs. No one knows what that means.
The Department for Business, Energy and Industrial Strategy (BEIS) told me that there are no details to share on how the support for business is calculated and it is unlikely that any information will be available this week.
In addition, unlike households, businesses do not have price caps, so everyone’s bill does not change. Companies typically have one- or two-year fixed contracts, but many traditionally renew before the winter months of September and October.
As one business group insider told me, “No one knows anything, and that’s a huge problem for the business.”
However, BEIS says meetings are continuing during the official mourning period and the government’s work continues.
That will be of little comfort to the business owner we spoke to last week who is struggling with whether to return the keys to his house before this winter.
The prime minister and finance minister wrote a blank check to try to avoid a recession. Families know their bills are fixed for the next two years, which will help that effort. But few businesses will invest, hire, sign new leases, etc. until they know when they will get what help they need.
If a recession is to be avoided, the government will need to provide more details and assurances as soon as possible.