With rising energy costs, higher inflation and higher prices at the petrol pumps, many households will really feel the pinch. But it’s energy bills that are worrying people the most.
Energy bills - a 'hot' topic
"I’ve been talking about the cost of energy a lot lately on the BBC, Channel 5 news and other media outlets and our own research into the cost of living shows that energy bills and energy prices are particularly worrying for many people.
So, I wanted to take a closer look at the government help with energy bills and how you can make your money go a little further."
Rising energy bills
Energy bills have risen very sharply in 2022 and people have fewer options to save money than they would normally have. That’s because it’s difficult, if not impossible, to shop around, as energy companies are generally not taking on new customers or the deals they’re offering may not be competitive.
The Energy Price Guarantee
From 1st October, under government plans announced in September, a new Energy Price Guarantee will take effect. Under the guarantee, a typical household getting gas and electricity from the same supplier, on the standard tariff and paying by direct debit, will pay £2,500 a year for energy. This is a rise of over £500 (or 25%) from the previous energy price cap level of £1,971. Customers on a prepayment meter, or who pay their bill quarterly will pay more.
The Energy Price Guarantee will last for two years and replaces the energy price cap announced at the end of August. It will apply to homes in England, Scotland and Wales and Northern Ireland, (although it has slightly different regulations covering the price of energy).
Households that don’t use gas, such as those that heat their homes with heating oil, will benefit from a fund that will be set so they can get equivalent benefits.
The price of energy
The Energy Price Guarantee – like the energy price cap - sets a limit on how much your energy supplier can charge you for a unit of gas or electricity and the standing (or daily) charge. The average unit price for gas will be limited to 10.3p per kilowatt hour (kWh), while a unit of electricity will be no more than 34p per kWh (this is for customers paying by direct debit who get their gas and electricity from the same company). The standing or daily charge will be limited to 46p a day for electricity and 28p a day for gas.
Sarah’s tip: People on a fixed rate deal will see their unit prices reduced by 17p per kWh for electricity and 4.2p per kWh for gas. However, it’s not yet clear whether this discount will apply to all fixed rate deals, or just those that are significantly more expensive than the Energy Price Guarantee.
What the price guarantee means for your energy bill
While the price guarantee limits the price of energy, it doesn’t set a limit on your bill. Your energy bill will depend on how much energy you use and how you pay. Paying by direct debit means you pay a lower unit rate (and generally a lower standing charge as well), whereas paying your bill when it arrives or having a prepayment meter are both more expensive.
Because of help already announced by the government in May, the annual energy bill for a typical household is likely to be around £2,100 or less this winter. I’ll explain why below.
Help with energy bills
Earlier in 2022, the government promised help towards the sharp rise in the cost of living. One of the main parts of this help was money off your energy bill. All domestic (namely, not business) electricity customers in England, Scotland and Wales are getting a £400 discount on their energy bill from October 2022. You will still get this discount (and any other cost of living help you’re eligible for) as the announcement in September of the Energy Price Guarantee does not change that.
Scam alert: You will not need to apply for the £400 discount and you will not be asked for your bank details in order to get it. If anyone contacts you out of the blue offering you the energy discount payment in return for your bank details, it is probably a scam.
How you will get the £400 discount
The £400 discount will be credited to your account in six instalments if you pay your energy bill by direct debit or quarterly (£66 a month in October and November and £67 from December to March). If you pay your energy bill by prepayment meter, how you receive the discount will depend on the type of prepayment meter you have.
- If you have a smart prepayment meter, you’ll receive the money directly onto your meter in the first week of each month from October to March
- If you have a traditional prepayment meter, you’ll receive a voucher by text message, email or letter. You’ll have to take this voucher to wherever you normally top up your meter to get the discount.
Electricity customers in Northern Ireland are also due to receive a £400 discount on their energy bills.
Help with the cost of living
You may also be entitled to one or more of the following payments on top of the £400 discount on your energy bill, depending on your situation.
- People over State Pension age: Most people of State Pension age receive the Winter Fuel Payment, but this year pensioners will receive an extra £150 - £300 as a ‘pensioner cost of living payment’. The amount you’ll get depends on your age and whether you live with someone who is also over State Pension age.
- People on a low income (both pensioners and those of working age): They will receive a cost of living payment of £650 if they are on certain benefits. This is split into two payments – one of £326 (paid in July) and one of £324 paid later in 2022. If you’re over State Pension age, you need to be claiming Pension Credit (Guarantee element) to get the cost of living payment. There are several benefits that people of working age can claim in order to qualify for the payment (such as Universal Credit and Working Tax Credit).
- People with disabilities: They will get a one-off £150 payment if they receive one of a range of disability benefits. These include Personal Independence Payment, Disability Living Allowance, and Attendance Allowance (for people over State Pension age).
In addition to the cost of living payments, earlier this year, the government offered people who live in homes in council tax bands A-D £150 off their Council Tax bill. England, Scotland and Wales all ran this scheme along similar lines (but households in Northern Ireland pay rates rather than Council Tax).
You can find more information on cost of living support on the government’s Help for Households website.
Warm Home Discount
The Warm Home Discount is a separate scheme which provides a discount of £150 on your electricity bill for people who qualify. You don’t receive the money as a cash payment, but rather as money off your bill.
You can qualify for the Warm Home Discount if you’re on the guarantee element of Pension Credit (which means you must be over State Pension age and not receive the full State Pension). You can also get the Warm Home Discount if you’re of working age, on a lower income and getting certain benefits. Most energy suppliers are signed up to the scheme, but some companies only offer it to customers who are over State Pension age.
Sarah’s tip: Latest figures show that there’s up to £1.7 billion in Pension Credit that’s not been claimed with one in three people who are entitled to Pension Credit, not receiving it. If you’re entitled to it, not only could it mean a higher weekly income, but you may qualify for additional help, such as towards your rent and Council Tax as well as the cost of living payment and the Warm Home Discount. Pension Credit can be worth over £3,300 a year.
Using less energy
If you can’t pay less for your energy, you may be able to use less by improving the energy efficiency of your home. It doesn’t have to be expensive; for example, you can buy foil-backed panels to put behind your central heating radiator, so you heat the room and not the wall. If you don’t have 270 mm of loft insulation (approximately 10 inches) you could be losing heat, so it’s worth adding more insulation. More expensive options include fitting thermostatic valves to radiators so you can switch off radiators in rooms you’re not using.
Grants and financial help
You may be able to get other financial help with your bills, such as a grant, for example, but it is likely to depend on a range of factors, such as where you live, whether or not you have savings and/or your income. The charity Turn2us has a grant search tool on its website.
If you’re struggling to pay your energy bills, contact your energy provider as they should reach an agreement with you about repaying any arrears. Most energy companies have their own fund which may be able to help if you’re a customer and are in debt with your energy bills.
If you need help with other debts, contact the company you owe money to or a debt advice charity. A debt advice charity will give you free advice about your debts. You can find out how to get free debt help on the MoneyHelper website.