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Energy Bill Freeze: Everything You Need to Know

The government’s freeze of energy bills has offered hope for millions of UK householders by removing the threat of them rocketing by a further 60% in October. Domestic energy bills had already reached a new high of £1,971 per year in April 2022, when the price cap rose.

Consumers already struggling with the cost-of-living crisis, including sky-high weekly shopping costs, faced a further energy bill rise in October as the price cap increased again. This would have taken bills to a new high of £3,549 per year.

Calculating Bills

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Thanks to the two-year freeze on energy bills announced by new Prime Minister Liz Truss, the new price cap in October will see the average bill rise to £2,500 a year – saving consumers £1,000 annually in comparison with the originally proposed increase. It will be frozen at this level until 2024.

Research estimates up to three-quarters of the British public will be in fuel poverty by the beginning of January 2023. The original increase in October would have left people having to choose between eating or warming their homes. Poverty charities had warned vulnerable groups, such as senior citizens, would have been at serious risk health-wise.

The new PM’s plan to cap the typical bill at £2,500 a year follows other previously announced government support packages. This includes the £400 being given out to everyone in Britain towards their energy bills, starting this autumn, plus the £650 government payment for people on low incomes, such as benefits claimants.


Why are energy bills so high?

Described as a national emergency, the rise in fuel prices has been driven by increasing wholesale gas costs and is widely considered a threat to the population as great as the coronavirus pandemic.

Before the PM announced the energy bill freeze, it was feared the cap could rise to £4,650 and then £5,456 next year without intervention. This would mean fuel bills alone would be costing more than 20% of the average UK income. For some people on benefits, that would consume 100% of their income, making life impossible.

In 2021, global wholesale gas and electricity costs were already increasing. This was blamed on higher demand, as the economy reopened after the Covid-19 lockdowns. The average UK household was paying £1,400 per annum for its energy in October 2021.

In February, Russia’s invasion of Ukraine worsened the situation, as it resulted in sharp cuts in gas supplies across Europe. Natural gas prices rocketed to a record high. This triggered the soaring electricity prices too.

The UK gets around 3% of its gas directly from Russia, but is impacted by the shortage in mainland Europe, which is a net importer of gas, connected by pipeline to Russia. There is a high demand for gas in Britain, as a large proportion of homes are heated by gas. In addition, around one-third of the UK’s electricity is generated through burning natural gas.

During 2021 and 2022, 31 British energy companies collapsed as a result of the unprecedented increase in wholesale prices. Their customers have been moved to other market suppliers.

Surviving energy companies are trying to claw back the costs of the extra energy they need through increasing household bills. The price cap used to run for six-month periods, but from 1st October, it will run for three-month periods to reflect the market’s current volatility.


Why is the energy bill freeze so vital?

The three-monthly price cap rises, if left unchecked, could have seen energy bills skyrocketing indefinitely. In addition to destabilising businesses, it would have plunged domestic energy users into poverty.

Introduced in 2019, the aim of the cap was to prevent consumers from being faced with excessive bills. However, it has failed to prevent massive price rises that consumers can’t afford and was deemed unfit for purpose after failing to prevent the energy crisis that we are all coping with today.

Exactly how the energy bill freeze will be funded is a grey area at present. It has been suggested the aid package proposed by the Prime Minister will be funded by more than £100 billion of government borrowing. It has also been suggested that Britain’s Covid debt may be put on the back burner for now.

This was the means the government used to help Britain survive its war debt in the 1940s and it might mean refinancing the £311 billion debt borrowed by the government during the pandemic to enable it to be repaid over a longer period.

Research conducted in 2022 revealed Brits are increasingly taking out loans to pay vital costs, such as energy bills. Debt advice groups say the trend of “buy now, pay later” has spread to loans for utility bills, with borrowers signing up for a loan now and paying it back over a longer period of time.

Research by Totally Money has revealed 16 million people in the UK are likely to take out a loan, including logbook loans secured on their vehicles, for unexpected expenditure of £300 or more because their budget is so tight.

Warning: late repayment can cause you serious money problems. For help go to