What is the energy price cap and why are bills going up so much?

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Woman reading energy billImage source, Getty Images

All UK households will receive a £400 discount on their fuel bills, while people on benefits will get an additional £650.

The government says the payments - to help with steep rises in energy costs - will be partly funded by a temporary 25% tax on oil and gas companies' soaring profits.

When will I get the £400 and how will it be paid?

All households in England, Wales and Scotland will be given a one-off £400 discount on their fuel bills in October. This replaces a previous plan to take £200 off bills, which would have had to be repaid over five years.

Direct debit and credit customers will have the money credited to their account.

Customers with pre-payment meters will have the money applied to their meter, or paid via a voucher.

The government says customers in Northern Ireland will also get the payments, although the way to do this has yet to be decided.

Who will get the £650 payment?

A £650 payment will be made to more than eight million low-income households who receive Universal Credit, tax credits, pension credit and other means-tested benefits.

For many people this will be paid into bank accounts in two instalments - in July and the autumn. Payments for those on tax credits only will follow shortly afterwards.

What other help is there?

Disabled people will receive £150 (plus the £650 payment if they also qualify for that).

Pensioner households who receive the winter fuel payment will get £300.

So in theory, a low-income pensioner who has a disability could get £1,500.

How fast are energy bills rising?

The maximum price which suppliers can charge customers in England, Scotland and Wales is called the energy price cap.

At the beginning of April, the price cap for a typical household rose from £1,277 to £1,971 per year. For pre-payment customers it increased from £1,309 to £2,017. How much you actually pay depends on how much energy you use.

Bill are expected to rise even further.

Why is the energy price cap rising so much?

The energy price cap is designed to protect consumers from short-term changes in prices. It is adjusted every six months (although Ofgem wants to reduce this to three months).

It is based on the price energy suppliers pay producers for electricity and gas.

This has risen sharply because demand for gas increased as the Covid pandemic eased, and because the war in Ukraine has threatened supplies from Russia.

The price cap doesn't apply in Northern Ireland, but households there are also seeing bills rise.

What's been the effect on customers?

There have been warnings that UK households are facing a "cost of living catastrophe".

Fuel costs are one of the main factors which have driven the UK inflation rate up to 9% - its highest for 40 years.

There have also been several warnings that many households face what's called fuel poverty - when a household has to spend a high proportion of its income on energy bills.

What other help is available?

The government is doubling the Household Support Fund to £500m. This money is given to local authorities in England to support vulnerable families.

Households in England have already been given a £150 council tax rebate to cope with the rise in fuel prices, if their homes are in bands A-D. Similar schemes are in place in Wales and Scotland.

English councils also have access to a "discretionary fund" for extra payments, including to people living in other council tax bands.

In Northern Ireland the government has been given money to make payments, but political uncertainty has meant the cash hasn't yet been released.

Eligibility is also being expanded for the Warm Home Discount, which offers low income households a £150 one-off annual discount on their electricity bill between October and March.

All the big energy firms have hardship funds, and customers can also get advice from organisations such as Citizens Advice, Turn2Us or the StepChange debt charity.

What can I do to save on fuel costs?

Fuel providers are currently not generally trying to tempt new customers with cheap offers. People who are already on fixed deals are advised to stay put.

Otherwise, households are being encouraged to save money by improving energy efficiency.

The Energy Saving Trust says several small changes could help people with rising energy costs.