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How the £200 energy rebate will work in practice

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Written by: Emma Lunn
08/02/2022
The government says every household will receive £200 towards energy costs this year – but the scheme is more complicated than it seems.

Chancellor Rishi Sunak announced last week that all domestic electricity customers will get £200 off their energy bills from October.

But far from being a handout, the cash is more akin to a loan – which everyone will pay back regardless of whether they benefited from the ‘discount ‘in the first place.

Energy suppliers will automatically apply the discount to domestic electricity customers from October – there is no need for customers to take any action – with the government meeting the costs.

The discount will then be automatically recovered from people’s bills in equal £40 instalments over the next five years. This will begin from 2023, when global wholesale gas prices are expected to fall.

Martin Lewis, founder of MoneySavingExpert.com, has explained in a video how the rebate will work in practice.

He said: “What will happen is this – in October, on every single electricity bill in England, Scotland and Wales, you will either have your bill reduced by £200, or you’ll be given a bill credit. If you’re on prepay, they’ll pay it through your smart meter or they’ll give you a voucher or a cheque.

“This is going to happen. There is no choice about it. It is not optional and it is going to happen automatically on every single bill. Then from the following April, and for five years after that, you will then have your bill automatically – without choice – increased by £40 a year. That is how it will work.”

Lewis points out that the best way to think of it is as “a form of energy bill levy.” We already have levies on energy bills. For example, we all pay a part of our bill which goes towards green infrastructure, whether or not you have green energy. A part of every energy bills also goes towards funding the cost of moving customers whose firm has gone bust to a supplier of last resort.

Lewis said: “So what’s going to happen here, is in October, we’ll have rather strangely a negative levy. They will take £200 off bills. And then each April after that, they will add a £40 levy back on them for five years to recoup the cost.

“There is no personal loan to an individual. This isn’t about, you borrowed money, you pay it back. So, if you’re living at home with parents and you move out in two years’ time, even though you didn’t get the £200, your bill will still be £40 higher – every household will be charged £40 more. You’ll simply get your energy bill and it will be higher because of this levy and the one this October will be lower.

“There’s no sort of loan account to an individual or even to a household. It’s more a negative levy than a positive levy. Hope that clears it up.”

Some people have taken to social media to complain that the way the rebate and levy will be administered will be unfair on certain group of people – including young graduates.

Many young people live in HMOs with all bills included in the rent they pay. In this scenario the landlord will receive the £200 energy discount, but is under no obligation to pass it on to their tenants. But if the tenants move out into individual accommodation between 2023 and 2028, they’ll still have to pay the levy on their energy bills.

One Tweeter said: “Moving out on your own next year? You get to pay £40/year extra on your energy bills for 5 years, never having had the £200 rebate. Same if you are in HMO such as student house, and getting individual housing after graduating. £200 rebate shared, each person pays £200 back.”

Another person Tweeted: “So, my son who is at university and pays rent inclusive of bills (already fixed and paid for this year) won’t see any of the £200, but will be paying it back for his last years of uni and first working years?”

Meanwhile, some people will benefit from the £200 rebate but never pay it back – for example, if you emigrated to another country next year.

The news comes as Ovo Energy announced it was providing a £2m package of support to StepChange Debt Charity over the course of 2022 to support people facing financial difficulty.

The money will go towards supporting the charity’s frontline advisers who offer support and advice to people struggling with energy bills.

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