Newly-appointed Prime Minister Liz Truss has announced a support package that aims to tackle the rising energy costs.
The support scheme, which would see yearly energy bills capped at £2,500 until 2024, is thought to cost up to £150 billion, but Truss hasn't announced an exact figure.
The Prime Minister said:
"This guarantee - which includes a temporary suspension of green levies - means that from 1 October, a typical household will pay no more than £2,500 per year for each of the next two years while we get the energy market back on track.
"This will save a typical household £1,000 a year. It comes in addition to the £400 Energy Bills Support Scheme."
How will the cap work?
Previously, the energy price cap was due to rise to £3,549 for a typical household from October.
Although the £2,500 cap will be put in place, energy bills will vary according to how much gas and electricity customers use.
The Government will compensate energy firms for the difference between the wholesale price for gas and electricity they pay and the amount they can charge customers, funded by increased borrowing.
The Government will also be scrapping green levies, which add £150 to bills each year, and is to launch a joint scheme with the Bank of England (BoE) to provide emergency support to struggling UK energy firms.
Known as the energy markets financing scheme, the programme will be worth up to £40bn and will "ensure firms operating in wholesale energy markets will have the liquidity they need to manage price volatility."
Downing Street has said the price cap would boost economic growth and curb inflation by as much as 5%.
Inflation as measured by the consumer price index is currently 10.1% and is primarily driven by rising energy costs.
Speaking to the House of Commons on 8 September, Truss said:
"We are taking an approach which is pro-growth, pro-business and pro the investment we need for energy security.
"This is a moment to be bold. We are facing a global energy crisis, and there are no cost-free options."
Industry reactions
The announcement of the support package has garnered praise from the Association of Chartered Certified Accountants (ACCA). Glenn Collins, head of the ACCA, said:
"The support package offers households and businesses a lifeline during this time of financial crisis and will be crucial to ensuring that both have much-needed certainty and can plan financially from now until spring.
"The upcoming budgets will offer the opportunity to provide the certainty and stability that individuals and businesses desperately need."
While the support for energy bills is a welcome relief to some, others are questioning whether it will have a lasting effect on the economy.
Torsten Bell, chief executive of the Resolution Foundation, said:
"Liz Truss is asking future taxpayers to pick up a large and very uncertain bill on behalf of today's energy bill payers but declined to set out the cost of this huge package. It could end up surpassing the bank bailouts at the height of the financial crisis.
"It goes without saying this can't be the permanent answer to higher energy bills."
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