Two days into Liz Truss’ term as Prime Minister of the United Kingdom, her first major policy announcement has been made in the form of a new energy price cap of £2500 in response to the rising cost of energy.

Before this announcement, Ofgem had set the energy price cap at a rate that would equate to costs of £3549 for those on typical use. These higher rates were due to come into effect in October 2022 but were deemed by many to be unaffordable.

As a result, on the first night of Liz Truss’ time as PM, there was an emergency meeting of government officials and energy company representatives. After many hours of discussion, a conclusion was reached that suited both parties.

The price cap would be set at a rate that would give a price of £2500 for typical usage which is higher than the current cap but is less than what was already proposed.

In order to make it more affordable, the previously announced £400 payment will still be made to households which will be paid in monthly instead of £66.

To make this better for the energy companies (because otherwise there is a risk they could go bankrupt) the green levy has been removed from bills so their costs are slightly reduced.

It has been predicted that in order to make this work the government will need to spend £150 billion subsidising the energy companies keeping the cap at this level until 2024.

In addition to the support for consumers, businesses will have their rates fixed for six months to ease the burden on struggling small enterprises.

Although this is a rise for customers, it is only 6.5% rise on current bills (taking payments into account) which will still make things tight but slightly more manageable for people.

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