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2022 is proving to be a painful year for our finances, not least because we are in the grip of a full-blown energy crisis. The maximum amount that can be charged on default energy deals - known as the energy price cap - rocketed by 50% in April due to the war in Ukraine, failures in the UK energy market and a lack of long-term investment in energy infrastructure.

The government first intervened in the crisis in February by announcing a council tax rebate Link opens in a new window for millions of households worth £150 and a £200 winter energy discount that would be paid back in the future. By the Spring, the discount was doubled to £400 Link opens in a new window and converted from a loan to a grant after much public pressure, and the government also unveiled more targeted help for vulnerable people sooner.

Now, as the colder months approach, the government has been forced to act again, following the announcement that the price cap was set to rise to a whopping £3,549 from October. Amid fears that low and even middle-income households would be plunged into fuel poverty, the government then introduced an energy price guarantee, effectively freezing the average bill at £2,500 for two years, starting from October. However, as of Monday 17 October, this has been changed and the energy price guarantee will now only last until April 2023.

The effectiveness and cost of all these interventions have been hotly debated by experts. But among the public, there is still some confusion about what they are, how they will help and when they will kick in.

So how does the government’s Cost of Living package and energy price guarantee apply to you? Who is excluded from it? And where can you find extra support if you need it? I’ll explain what you need to know.

Phase 1 of the government’s help: Council Tax Rebate worth £150

In February, the government announced every household in council tax bands A – D would receive a rebate on their council tax worth £150 Link opens in a new window from April until the end of September. If you pay your council tax by direct debit, you would have automatically received the money in your bank account by now.

If you pay for your council tax in other ways, your council should have either sent you a cheque/Post Office voucher or contacted you with information on how to apply for the rebate. If you haven’t received anything, contact your council ASAP. 

Phase 2 of the government’s help: Energy Bills Support Scheme worth £400, extra Cost of Living payments and more funding for the Household Support Fund

In February, the government also announced a £200 discount on energy bills that would kick in from October and be paid back in instalments (via automatic deductions from your bills) over the following five years. However, this was changed following widespread criticism about the terms of repayment and the complications for people taking over household bills in the future when they hadn’t previously received the discount.

In May, it was announced that every household should get a £400 discount on their energy bills that won’t have to be paid back Link opens in a new window. I say “should”. The government is still ironing out how certain groups not on the gas grid, like those who use heating oil, will get the discount. Likewise, students are entitled to receive the discount, but landlords are not legally compelled to pass it on.

The discount will be paid out in instalments between October 2022 and March 2023. The amount you’ll receive will be £66 in October and November, then it will be £67 each month from December to March.

If you pay your bills by direct debit, standard credit (i.e. as you receive your quarterly bill) or via a smart prepayment meter, the money will be automatically deposited into your energy account. Depending on the provider, it will either go into your electricity account or be split between your gas and electricity accounts. If you have a traditional prepayment meter, you’ll be sent a voucher via text, email, or post which you can redeem the normal way.

In addition, the government announced a range of extra Cost of Living payments for vulnerable and elderly households. Here are the details:

1. £650 for those on means tested benefits Link opens in a new window - This is being paid in two instalments to anyone receiving Universal Credit, Income-based Jobseekers Allowance, Income-related Employment and Support Allowance, Income Support, Working Tax Credit, Child Tax Credit or Pension Credit.

Nearly everyone who qualifies would have received the first instalment worth £326 back in July, with the second due in the Autumn (the government hasn’t yet confirmed exactly when). The exception is those on Tax Credits, who should have got their first instalment in early September, with the second due in the Winter (again, timings are yet to be firmed up).

2. £300 for pensioners Link opens in a new window - If you are over State Pension age (aged 66 or above) between 19 – 25 September 2022, you will receive a one-off payment of £300 as a top up to your Winter Fuel Payment in November/December. This will be paid directly into your bank account.

3. £150 for those claiming disability benefits Link opens in a new window - This is a one-off payment for those claiming Disability Living Allowance, Personal Independence Payment, Attendance Allowance, Scottish Disability Benefits, Armed Forces Independence Payment, Constant Attendance Allowance or War Pension Mobility Supplement. This is being paid directly into claimants’ bank accounts in September 2022.

The government also announced extra funding worth £500m for the Household Support Fund Link opens in a new window, which is dished out by councils across the country to anyone who has missed out on support and really needs it. Contact your local council to find out what their eligibility criteria is.

Phase 3 of the government’s help: Energy Price Guarantee

In September 2022, the new Prime Minister Liz Truss announced an energy price guarantee for all households on variable tariffs, originally capping the amount that you’ll pay for typical energy usage at £2,500 a year for the next two years. However, on Monday 17 October it was announced the energy price guarantee would now only last until April 2023.

It’s important to stress that this is not an absolute cap on your energy bills, regardless of how much you use. Instead, it limits the amount that suppliers can charge the average unit price of energy, as measured by kilowatt hours (kWh). For customers paying by direct debit, this will be set at 34p/kWh for electricity and 10.3p/kWh. If you use more, you’ll still pay more.

Energy costs also vary depending on where you live, due to factors like how much your local distribution networks cost and how much energy is bought from local generators.

Ms Truss used the figure of £2,500 but this will only apply to medium-sized houses with two or three residents using a “typical” amount of energy. To get a sense of how much your energy bills will rise, analysis of ONS data shows a house or flat with just one or two occupants could see their average annual bills rise to £1,731 (up from £1,365), whilst a larger house with four to five occupants will see bills go up to £3,471.

Even then, the figures are slightly complicated by the fact that this doesn’t take the £400 energy discount into consideration. So, in total, the average household will pay around £2,100 per year from October - 6.5% more than the current £1,971 energy price cap.

Real energy costs for households post-price freeze*

analysis of ONS data conducted for Virgin Money by interactive investor
*Based on ONS estimates for the amount different households use in energy. This doesn’t take the £400 energy rebate into account.

What YOU can do next

If you can meaningfully reduce your energy use this winter (without compromising your health or basic wellbeing), you can certainly take some of the sting out of these price rises. The Energy Saving Trust Link opens in a new window has a wealth of information on its website, breaking down exactly how much certain measures would save you.

Take meter readings every week from now on so you have an up-to-date understanding of how much energy you’re using. You can then feed that back to your supplier and check whether they’re correctly estimating your energy usage.

If you have been cutting back and intend to continue throughout the winter, you may be able to ask your supplier to lower your direct debit. Bear in mind, though, that this is meant to be set at a level that reflects your energy usage throughout the year, including the colder months when you’re expected to use more.

However, your supplier should be able to break down exactly why your direct debit is costing that much, to prove that it’s at the correct level. Remember that you will not be able to ask for your bills to be reduced if they are accurately covering the amount of energy you’re using.

If you’re struggling to keep up payments, speak to your supplier NOW. They have a legal obligation to help you work out an affordable repayment plan for your energy debts.

Unfortunately, this doesn’t mean they can magically whittle down your bills to a level you deem affordable. But it’s far better to have a dialogue with your supplier as this reduces the chances of late charges and might allow you to access emergency credit if you’re on a prepayment meter.

Don’t forget that your supplier must explore all options with you, including a 3-month breathing space on debts, before you are moved onto a prepayment meter, and it has a particular duty of care under its Priority Services Register if you’re vulnerable in any way. This includes doing everything possible to avoid disconnection.

Debt charities and non-profit debt advisers are a lifesaver if co-operation between you and your supplier has broken down, and you’re reaching a crisis point. They can find out if you’re getting all the benefits you’re entitled to, mediate with your debtors, and help you draw up a budget to demonstrate your need for a grant from your energy supplier via its charitable trust, which can be used to pay off your energy bills.

Citizens Advice Link opens in a new window is particularly helpful (though exceptionally busy right now, so you may have to wait for a response from them). It has an Extra Help Unit which stands up for vulnerable customers and can refer clients for extra fuel vouchers.

Also, don’t forget to check whether you are in the right council tax band, particularly if you or someone you live with is disabled. Councils should reduce your council tax if you have had to specially adapt your home for disabilities as part of the Disabled Band Reduction Scheme Link opens in a new window. I recently helped a follower of mine obtain the rebate and discount on his council tax bills because he cares for two disabled children.

There’s no getting around the fact that this is going to be a tough winter, even if more government help is on its way. So, it’s crucial to understand whether you’re getting all the benefits, grants and support you’re entitled to. You can use a benefits calculator via Virgin Money’s Turn2us benefits calculator Link opens in a new window.

Right now, it’s impossible to predict with certainty whether higher prices are a blip or permanent change to the financial landscape.

Either way, you’re not on your own: help is available via many fantastic organisations, and energy suppliers will have no choice but to treat customers fairly if it’s to keep them on side and stop protest movements.

Staying positive can be hard in the face of constant gloomy news. However, it’s important to understand what’s really happening with YOUR bills and to focus on what’s in your control.

Being smart with your energy usage, keeping a close eye on your meter readings and checking your direct debits reflect your cutbacks…these can all help you get through the coming months. Whilst there is no silver bullet, little actions can all add up and make a difference.

This article was published in September 2022 – for all updates on available cost of living payments please visit the Gov.UK website Link opens in a new window.

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