Last updated 23 February 2022
Energy Bills Support Scheme
To help with the surging cost of energy, Rishi Sunak, the Chancellor announced a package of 3 measures designed to take the sting out of the truly shocking 54% (£693) increase on energy bills coming into effect on 1 April 2022 courtesy of the Energy Price Cap.
The package comprises
- A £200 discount on energy bills in October 2021 for ALL domestic electricity customers in Great Britain. The discount will then be paid back automatically over the following 5 years (irrespective of whether you have received the £200 rebate or not).
- A £150 non-repayable Council Tax Rebate payment for all households that are liable for Council Tax in Bands A-D in England.
- £144 million of discretionary funding for Local Authorities to support households who need support but are not eligible for the Council Tax Rebate.
Where UK Government support doesn’t extend to cover Scotland, Wales or Northern Ireland (basically the Council Tax Rebate) then those devolved administrations will receive around £715 million of funding through the Barnett formula, in the normal way, to cover those expenses.
This Energy Bill Rebate article focusses primarily on the first part of that package. We will however briefly touch on the other components of the package.
What is the Energy Bills Rebate?
The energy bills rebate is a £200 discount on energy bills, applied to the electricity bills of ALL domestic electricity customers in Great Britain. It is intended to help spread (a small) part of the cost of the record increase in energy bills coming on 1 April 2022, over a number of years.
However, unlike a normal rebate or discount, this one is repayable. Which technically, makes in neither a rebate nor a discount. More on that below. For now, we will continue to refer to it as a rebate / discount.
How will the Energy Bills Rebate work?
ALL domestic energy customers in Great Britain will receive a £200 discount on their electricity bills from October 2021. This will appear on your bill as the Energy Bill Discount Scheme.
The discount will then be paid back automatically over the following 5 years applied as a surcharge on electricity bills. The surcharges will start in 2023 and will be collected in 5 equal annual instalments of £40 each.
The “discount” will need to be paid back irrespective of whether you have received the £200 rebate or not.
Funding for the scheme will be provided by the government to energy suppliers who will pass it on in the form of rebates / discounts on consumers electricity bills. In turn, energy suppliers will collect the surcharges and repay them to government.
How do I claim the £200 Energy Bills Rebate?
You don’t have to. The rebate will be applied automatically to your electricity bill. You do not need to do anything.
When will I receive my Energy Bills Discount?
The rebate will appear on your electricity bill from October 2022. On your bill it will be called the Energy Bill Discount Scheme. In the vast majority of cases, you will not actually see a cash refund. Instead, the £200 Energy Bill Rebate will be used to offset your energy spend for the bill period, with any surplus carried forward to the next energy bill. Exceptions will apply for certain meter and payment types.
Can I get the energy rebate sooner than October?
No. However, there are other measures that have been announced that could help, such as the Council Tax rebate (more below).
Why isn’t the Energy Bill Discount Scheme being implemented sooner, in time for the 1 April 2022 energy price cap increase?
There are 2 possible answers to this; the official government line and the more likely one.
There is a current expectation (which might well be wrong) that the energy price cap is heading higher yet again at the next scheduled review date (1 October 2022). Yes, even higher than the £1,971 just announced. So, the government line is that the rebate is timed to coincide with that further energy price cap increase.
However, in our view, it is far more likely that Government, Ofgem and the energy suppliers not have yet worked through all the details and operational aspects of the implementation of the Energy Bills Discount scheme (including any necessary consultations).
Basically, it will not be ready to go in time for the 1 April 2022 price increase.
Does the energy rebate vary depending upon energy usage?
The £200 discount is a fixed amount per household.
Why do I have to pay the Energy Discount back?
That’s a good question.
The Energy Bills Discount scheme is being plugged, by the Treasury, as a support package worth some £5.5 billion. But the Treasury are not actually giving the money away. They are, in a sense, lending it to the energy suppliers, who are in turn lending it onto you. That way, the actual cost to the Treasury is much, much lower. Basically, it will only cost the Treasury interest foregone on the money lent out (currently 1.28% per annum on 5-year bond yields), and any rebates that are not repaid (such as energy supplier failures or bad debts). They need you to pay it back to keep the overall cost down for them.
This all sounds very stingy but, in reality, if they gave the money away it would end up having to be recovered from taxpayers who, for the most part, are also energy bill payers. So, in a sense, one way or another, the majority will end up paying the money back either directly, through the rebate surcharge, or indirectly through general taxation.
How will the Energy Bills Rebate be repaid?
The current official expectation that the annual £40 repayment will be factored into, and collected by, an increase to standing charges on electricity bills. This however is subject to consultation. If it happens this way, then the repayment would be spread over the course of a full year since standing charges are applied daily. It will add 10.96p/day to the daily electricity standing charge.
Doing it this way does however raise complications, such as having to reprice fixed price tariffs to incorporate the charges. We believe it would be far easier to apply it as a separate line item on the bill.
Can I opt out of the energy rebate?
That’s right. The rebate and the repayments are being foisted upon you, whether you like it or.
I have two different suppliers for gas and electricity – does that mean I’ll receive double the rebate?
All households will get the one £200 energy support payment because the rebate is applied just to the electricity bill.
Why is Energy Bill Discount Scheme being applied to just the electricity bill?
Every household has an electricity supply and gets an electricity bill. Not all households get a gas bill.
How will my direct debits be affected?
The detail of this has still to be worked out.
We expect that it will follow the normal process by which direct debit payments are calculated and collected. First, your annual energy usage for the coming 12 months is estimated. This is then multiplied by the projected cost of that energy to reach an estimated annual spend. The annual spend is then split into monthly payments. Some suppliers spread these payments equally over the year. Other energy suppliers apply a winter uplift, so that payments in winter months are increased by, say, 20% and payments in the summer months are reduced by a corresponding amount.
With the energy bill rebate, and any subsequent repayments, all that the energy supplier needs to do is to factor these into the estimated annual spend, and then apportion them to monthly payments. It should be very straightforward.
The only potential complication is whether energy suppliers began that process immediately, or whether they wait until the formal consultation period is over and they have more certainty over the detail. We suspect the later.
I have a prepayment meter. How will I get my Energy Bill Discount?
That will likely depend upon the type of prepayment meter you have. There are 3 possible mechanisms.
- If you have a smart prepayment meter then the rebate will likely be applied as a credit on the meter.
- For more traditional prepayment meters, then you will likely get a voucher to use for top up payments, much the same way as Warm Home Discount payments are made to customers with prepayment meters.
- If all else fails, we understand the final catch all option will be a cheque in the post.
The operational details are still to be worked out.
What if my total electricity bill doesn’t come to £200?
The Energy Bills Discount will still be applied to your electricity account which will show a credit balance. That balance will then be used to offset future energy bills, although we don’t see why you couldn’t ask your energy supplier to refund it to you.
I have a fixed price energy tariff? Will the Energy Bills Rebate affect me?
Yes. It doesn’t matter which energy tariff you are on, you will get both the rebate and the annual £40 surcharges.
If the repayment surcharges are applied through the standing charge, as has been suggested, then it means your fixed tariff rates will have to change. This will usually already be allowed for in the energy supplier’s tariff terms and conditions. Most fixed price energy tariffs have a condition which states that…(emphasis ours)
“[Energy supplier] guarantees that the tariff prices will remain fixed until [date] unless it is prevented from doing so by the actions or requirements of any governmental, statutory or licensing authority.
Energy suppliers are well used to governments and regulators meddling with energy markets so have allowed for this eventuality.
If I don’t receive the £200 energy bill rebate, will I still have to make the repayments?
There are some groups who are going to be on the wrong side of these arrangements. For example, if you are currently living at home and not paying energy bills, then you will not receive the rebate. However, once you move out and rent or buy your own home, then you will have the repayments added to future electricity bills. This will apply, for example, to young people and students.
On the flip side, there will be others who will receive the rebate, but then stop being bill payers. In this scenario, they will not have to repay the energy rebate 2022.
Clearly there is an issue of fairness at play here.
Rishi Sunak explains this away like this. Young people who pay the £40 surcharge, but may not have benefitted from the original rebate, will be benefitting from lots of things, like cheap offshore wind energy, that others have paid for through prior energy bills (and which they haven’t). Make sense?
If you have to repay something that you never received, it does raise the question of whether the energy bills rebate is actually a rebate, a discount, a loan or something else. For those interested, we look into these questions towards the end of the article.
Is the Energy Bills rebate, and the repayments, subject to VAT?
But as long as VAT is applied consistently at both ends (the rebate and the repayments) it doesn’t really matter that much.
What happens to the energy bill discount if I move house?
The energy bills rebate, and the subsequent repayments, are attached to the electricity bill of the household. So, it doesn’t actually matter where you live, or if you move (provided that it is still in Great Britain).
You will receive the rebate on the electricity bill of the property you are living in at the time the rebate is paid. You will then be charged the repayment surcharges on the electricity bills of whichever property you are living in at the time the surcharges are applied.
Will I lose the energy rebate if I switch energy supplier before I receive the money?
We don’t think so.
You should receive the energy bills rebate regardless of which energy supplier you are with, which energy tariff you are on, or whether you switch energy supplier or not.
Having said that, we will be keeping a very close eye on this during the consultation process and will update you if things change.
How will I receive the Council Tax rebate?
Local Authorities are responsible for making Council Tax rebate payments. The Treasury expects that eligible households, who pay their council tax by direct debit, will receive a single £150 payment in April 2022.
Is the Council Tax rebate repayable?
Unlike the energy rebate 2022, you won’t have to repay the Council Tax rebate.
How much is the energy support package really worth?
Rishi Sunak has been pushing a headline number of £9 billion as the level of support being provided. This breaks down roughly as follows;
- One-off £200 energy bills rebate – £5.5 billion
- £150 rebate on Council Tax Bills – £3.5 billion
- Discretionary Funding to support vulnerable people and individuals on low incomes that do not pay Council Tax – £144 million
- Plus, Expansion of Warm Home Discount by almost a third to 3 million households – £100m
The expansion of the Warm Home Discount Scheme is a pre-existing plan so we will ignore it here.
Of the other measures, the Council Tax rebate and the discretionary funding are cash costs to the Treasury. These come to around £3.6 billion.
The energy bills discount scheme however is effectively a repayable loan. The actual cost to the Treasury is the interest foregone on the money lent out (currently 1.28% per annum on 5-year bond yields = approx. £320 million), and any rebates that are not repaid (such as energy supplier failures or bad debts).
So overall, we are looking at a £4 billion package + bad debts.
How will the energy support package be financed?
Offsetting the cost of the £4 billion+ package will be increased VAT payments on much higher energy bills. VAT payments on the energy bill of the average household will increase by £33 by virtue of the 1 April 2022 energy price cap. This will net the Treasury up to an additional £900m windfall in VAT payments. And if energy prices rise again in October 2022 to £2,300, which is quite possible, then that windfall increases to £1.4 billion annually.
That will allow Mr Sunak to self-finance the complete support package in as little as 3 years. If you throw in some bad debts plus any increased funding to the devolved administrations, the support bundle should be easily self-financed within the 5 years the scheme is operating.
By self-financed we mean, of course, that energy consumers are picking up the bill to pay for their own rebates.
They didn’t make him Chancellor for nothing.
What does the energy support package mean for households?
Unfortunately, not much at all.
Bear in mind that the average household will see their energy bills increase by £57.75 per month from 1 April 2022.
If you receive the full package of support (£350), that will be swallowed up by 6 months of additional energy bill payments (by early October 2022). So, the Energy Bills Rebate will be spent before you even receive it.
If you receive only the Energy Bills Discount (£200), that will be swallowed up by 3.5 months of additional energy bill payments (by mid-July 2022).
Where can I find out more?
There is a lot more information on the Council Tax rebates and the Discretionary Fund on the Paul Lewis Money blog.
When is a Rebate not a Rebate?
Isn’t the Energy Bills rebate really a disguised (interest free) loan?
Well, yes and no.
It certainly has many of the characteristics of a loan.
Money given by one party to another party in exchange for repayment of the loan principal amount plus interest.
However, with this setup there are many, many complications.
- Loan terms need to be agreed to by each party before any money is advanced; this is not happening here.
- Some beneficiaries who receive the “loan” may not pay it back; that is not unusual as defaults do happen.
- Some parties will not receive the “loan”, but will be required to pay it back. That never happens.
So, strictly speaking, it is not a loan per se.
Also worth noting that, to offer credit to consumers in the UK, you must be authorised by the Financial Conduct Authority (FCA). As the rebate financing is being channelled via the energy suppliers, that means they will need FCA Authorisation. Some already have it, but for others it will be an un-needed complication.
Is the Energy Bills rebate really a rebate?
The Cambridge Dictionary defines a rebate as…
money that is returned to you after you pay for goods or services, done in order to make the sale more attractive
In practical terms rebates are a retrospective payment which ultimately reduces the overall cost of a product/service at a later date. This makes rebates different to discounts, as you pay the bill for the full amount then, at some point later in time, part of the amount gets returned to you.
So, while this “rebate” satisfies the retrospective payment condition, it doesn’t reduce the overall cost of the product because you have to pay it back. Basically, you have to rebate the rebate.
Is the Energy Bills Discount really a discount?
Again, technically no.
The Cambridge Dictionary defines a discount as…
a reduction in the usual price
In practical terms discounts are typically applied at the point of purchase to reduce the buying price; when you get a bill, you pay the discounted value. It’s all very immediate. The discounted price is visible at the precise moment that the purchase is made.
So, while this “discount” (theoretically) reduces the buying price, it doesn’t reduce the buying price permanently, because you have to pay the discount back.
What exactly is the Energy Bill Rebate?
The Energy Bill rebate can’t be both a retrospective payment, and an immediate reduction in price at the point of purchase. It can’t be both a Rebate and a Discount at the same time.
And, although the Treasury call it both a discount and a rebate, as we have seen above, it is neither one nor the other.
Neither is it a loan.
So what is it then?
The Energy Bills Rebate is really a levy
The Cambridge Dictionary defines a levy as…
an amount of money, such as a tax, that you have to pay to a government or organization
Energy bills in the UK already include levies. These comprise government social, environmental and policy costs (accounting for £153 of the 1 April 2022 energy price cap) and the Supplier of Last Resort (SoLR) levy, making up a further £68.
The rebate repayment part clearly fits into this description. What about the original £200 discount?
Technically, there is no reason, that we know of, why a levy can’t be negative so we will go with that. Please let us know if you know different.
Can I cut my energy bills further by switching energy suppliers?
Unfortunately, not at the current time.
There is no real functioning energy switching market at the current time. But even if there was, we would recommend that you stay put, for the time being anyway. The current (pre-1 April 2022) energy price cap is still significantly lower than any other available tariff in the market. Therefore, it makes no sense to switch.
However, now that the energy price cap has been lifted, energy suppliers have a chance of resuming normal operations. This means that energy switching should gradually return over the coming weeks and months. When energy switching does come back, it will be a huge relief for consumers. Right now, households have just one way to reduce their energy bills; by significantly cutting back on heating and lighting. For many, that will not be possible in any meaningful way. Energy switching therefore represents the quickest alternative way to cut your energy bills. Even a small percentage saving on MASSIVE energy bills leads to useful cash sums.
If you would like to know when some normality returns to the market, and energy switching once again allows you to cut your energy bills then do one or more of the following. Sign up to our newsletter (in the footer of this page), check our home page from time to time for updates, or follow us on Twitter.
In the meantime, our energy comparison service is operating as normal. You can run a comparison to see what is available by popping your postcode into the box below.