The Government has finally announced some support for ever-increasing energy bills.
After a lot of pressure, and a prediction from Ofgem that the energy price cap will increase by £800 in October, the Government has finally improved the financial support on offer to help us all cope. This time there’s money for everyone, plus further cash targetted at those most in need. Here’s what you need to know.
£400 for all (to keep)
Let’s start with the money that everyone will get – something called the Energy Bill Support Scheme. This will be direct support for your energy bills with £400 taken off all energy bills from October 2022.
This won’t come as a lump sum. Instead, it’ll be spread out over six months, so you’ll actually get £66.66 (ish) off each bill. However, with bills set to rise by on average £800 a year in October, the net result is your bills will stay the same, more or less (obviously actual bill size depends on how much energy you use).
This payment replaces the previously announced £200 deduction that was due to happen at the same time. This proved controversial as it was to be paid back in £40 installments over five years.
However, as well as doubling the amount given, the new £400 payment is no longer a loan that needs to be repaid. Instead it’s a grant, much like the £150 Council Tax rebate that households in bands A to D have recently received (or soon will).
How will you get it?
Most will see this applied directly to their bills via their energy companies, but if you’re on a prepayment meter you will either get vouchers or have credit applied to your account.
£650 help for those on low incomes and benefits
The next chunk of cash, worth £650, is targetted at the approximate 8 million lowest earners in the UK. Two payments of £325 will be paid out. The first is due in July and the second in the autumn. If you only get tax credits you will get the payment slightly later.
Those eligible for the first payment have to have applied for or be already receiving one of the following by 25 May 2022:
- Universal Credit
- Income-based Jobseekers Allowance
- Income-related Employment and Support Allowance
- Income Support
- Working Tax Credit
- Child Tax Credit
- Pension Credit
If you aren’t currently claiming one of these, it’s well worth finding out if you are eligible via sites like turn2us or entitledto. Not only will you hopefully get the autumn payment (and perhaps more if the scheme ends up being extended – though that’s pure speculation on my behalf), but you’ll also get the benefits. Pension Credit in particular is massively undersubscribed by those who can claim it.
How will you get it?
The money is going to be paid directly into your bank account by the Department for Work & Pensions (DWP). It’ll be tax-free and won’t count towards the benefits cap or impact amounts you receive for other benefits.
£300 extra for pensioners
Seeing as older people are more likely to be at home and have the heating on for longer, it makes sense for some extra cash to go their way. This will take the form of a £300 addition to Winter Fuel Payments.
Around 8 million retirees already get this money in November or December, worth £200 to £300, and this will be extra money on top paid at the same time. This is as well as, not instead of, the other payments announced.
To be eligible you need to reach or be at the State Pension age of 66 between 19 and 25 September 2022, though there are a few exceptions which are listed on gov.uk.
How will you get it?
It’ll be paid along with the usual Winter Fuel Payment.
£150 more for disabled people
The final grant is targetted at those receiving one of these disability benefits:
- Disability Living Allowance
- Personal Independence Payment
- Attendance Allowance
- Scottish Disability Benefits
- Armed Forces Independence Payment
- Constant Attendance Allowance
- War Pension Mobility Supplement
Once again, this could well be in addition to the £650 received from the means-tested benefits, and indeed the £300 Winter Fuel Payment.
How will you get it?
As with the £650 payment, this will be paid directly to those eligible in September, with the cut-off date for this also 25 May 2022.
More cash for the Household Support Fund
The previously announced pot of cash that’s given to local authorities and councils to distribute to those most in need (even if they’ve had some of the other payments) will have another £500m added, and it’ll e extended for six months.
This means it’ll have a total of £1.5bn in funds until March 2023. You’ll need to check with your local council to see if and how you can apply.
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There were no further changes to support other increased costs, such as a reduction in VAT (which would have been nice to see on energy bills at least).
It would have been good to have seen some kind of uplift in Univeral Credit or the State Pension on top, to make up for the gap between the 3.1% increase that happened in April versus the expected average inflation rate of 9% this year. That didn’t happen, though the Chancellor said benefits will go up by September’s CPI rate (potentially higher than 2023 inflation rates) and triple lock will return for the State pension.
People who heat their home via oil will miss out on the £400 support, but some might be eligible for the one-off benefit boosts.
There was also nothing for businesses, that already don’t have an energy price cap to protect them from existing increases.
Is it enough?
Those on benefits in bands A to D will get a total of £1,200 over six months or so. That’s bang-on the average increase in energy bills between April 2022 and April 2023. According to the Resolution Foundation, it’ll account for 82% of the increased energy bills for average families and 90% for the poorest.
So it’s a huge help there. But energy bills aren’t the only prices that have increased. Food, petrol, clothes… you name it. The most vulnerable households are still going to be massively stretched.
And energy prices are predicted to remain high for a while yet, so it could be yet more help is needed from April 2023 onwards. The Chancellor has implied that if needed there could be further measures.
Is it fair?
Where I think these policies beat the previously announced help is that it does appear to be largely targetted at those most in need. Apparently three-quarters of the money goes to those on the lowest incomes.
However, this has been very clearly announced as a one-off and temporary measure. The cost of living crisis isn’t just about energy bills and isn’t going to be over in October.
As for the £400 going to all households, there’s certainly an argument that not everyone should get this (including the Chancellor himself) or those with second homes. It’s a tough one because there will be many who don’t get any benefits or didn’t get the £150 Council Tax payment who will still be squeezed by all the increased costs. So I think it’s (largely) fair enough.
However, it is ridiculous that the super-rich aren’t also being asked to contribute more via the tax system yet can benefit from £400 off the bills in each of their houses!
For those in-between (the people who can get by or are doing well) I’ve seen it suggested that they use the deduction on their bill as an opportunity to give a little more to charity. That’s something I can get behind.
How is it funded?
The Chancellor has been vocally against windfall taxes on energy company profits, saying this won’t work and will hurt investment.
Which is why Rishi Sunak has called the £5bn tax on oil and gas providers an “Energy Profits Levy”, even though it is a windfall tax.
A rate of 25% will be applied to profits until energy prices return to historically lower rates, and it’ll then be phased out. So there’s no set end date for this so it could continue for a few years. However, it was made very clear that this is “temporary and targeted”.
Energy firms will also be able to avoid this by investing money into the energy markets, though controversially that likely means more fossil fuel extraction rather than into renewable energy.
Why wait until now?
When I spoke to the Chancellor back in March for my Cash Chats podcast, I got the impression that he felt the £150 Council Tax rebate was going to be enough.
I pushed him on why more wasn’t being done then (in March) to combat the April energy bills increase and the predicted £800 to £1,000 hike in October. He replied “we can’t possibly know now what energy prices will be like yet”.
I’m not sure that was really any more true then than it is now. But since then it’s been all very quiet with no indications of whether there would be anymore help at all.
Until this week that is. First Ofgem announced it now expects an £800 increase to the cap in October. That certainly put pressure on the government to do something, and it seems like the measures were rushed through in the last few days rather than a long-term plan.
But I don’t think I’m being overly cynical to point out this comes the day after the Sue Gray report and a few after more Partygate photos were published. This is certainly a distraction from those headlines.