Britons still need a ‘frugal approach’ to energy as significant debts are still a risk | Personal Finance | Finance
Ms Truss’s plan is to freeze Ofgem’s price cap at £2,500 for the typical household for the next two years. The plan includes the £400 energy discount which was announced by former Chancellor Rishi Sunak earlier this year. Truss is also temporarily removing the green levies that contribute about £150 annually to the average bill.
Ministers say the new “energy price guarantee” will save the average household £1,000 a year, based on what would have happened in October if the Government had not acted.
However, according to the financial services firm AJ Bell the new cap will save those on typical usage around £36 a month.
The exact details of the package have yet to be revealed however initial projections suggested it may cost more than £150billion.
The new energy package will likely be funded through additional Government borrowing as Ms Truss has frequently stated that she was against the idea of a windfall tax on energy companies’ profits.
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Commenting on the plan, Alice Haine, personal finance analyst at Bestinvest said: “While £2,500 is over £1,000 less than Ofgem’s energy price cap of £3,549, set to come into force on October 1, it is still 23 percent more than the current level of £1,971.
“However, with the £400 rebate on top, it means bills will remain around their current level – but that does not take away all the pain for consumers.”
Ms Haines explained that as energy prices are still “significantly higher” than they were a year ago some households are already struggling with the costs.
A year ago the average monthly direct debit was just under £95, Thursday’s announcement suggests that the average monthly direct debit cost could be around £208.
According to figures calculated by the BBC, the annual bill for a purpose-built flat may be around £1,750 and the bill for a mid-terraced house could be around £2,350.
For a semi-detached house the BBC predict the annual energy bill will be around £2,650 and for a detached house is could reach as high as £3,300.
Ms Haines believes Ms Truss’s plan does go “a long way towards taking the fear out of the equation” and that it does “remove the uncertainty over what lies ahead for the economy “ at least for the immediate future.
This is because inflation predictions are now a little less than what had previously been estimated.
Ms Haines added: “While the Bank of England has said Truss’ energy bill bailout may not prevent it from increasing the base rate at next week’s meeting, it does expect runaway inflation to be contained.
“This offers hope that the country is potentially looking at a much milder recession at the end of the year than the more severe downturn some were expecting.”
Experts at the boiler installation company BOXT urge Britons to continue to try and reduce their use of energy by any way they can.
BOXT states that people should be turning down their thermostats by a degree, programming their boiler, and installing smart technology such as smart meters and thermostatic radiator valves.
Andy Kerr, founder at BOXT said: “While the news is welcomed, energy bills have still increased significantly, and consumers should be doing everything they can to reduce their energy usage and costs.
“As we head into the winter months when demand for energy is at its highest, the increase in energy consumption will still be reflected in our bills and could potentially still make people unable to afford to heat their homes.”