Martin Lewis explains how a new £200 energy bill loan offered by the Government really works in his latest video. The initiative was announced this week in a bid to help households with the rising cost of living, following confirmation that typical energy bills will rise by £693 a year from 1 April. But there's lots of confusion about the loan, which MoneySavingExpert.com founder Martin debunks below.
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Martin Lewis: How the new flat rate £200 energy bill loan really works
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Here's a full transcript of Martin's analysis on the Government's new £200 energy loan
"I know there is a lot of confusion about the £200 bill credit loan on energy that's due to start in October and much misunderstanding about it. So I want to talk you through in practice how it will work.
"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.
"The best way to think of it is as a form of energy bill levy. We already have levies on energy bills, we all pay a part of our bill which goes towards green infrastructure, whether you have green energy or not. A part of our bill goes towards funding the cost of moving customers whose firm has gone bust to a supplier of last resort. That is a levy added to our bill.
"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."
Also it is not a flat £40 on Aprils bill from what has been mentioned but a 11p a day standing charge... which is right?
Whether it is a loan or not, it is being treated like a Klarna style product you are being forced to take the rebate and then forced to pay it back over the next five years, then others are being charged for something they didn't even have.
Best thing would be to simply not do this at all and simply tackle the problem by trying to make people more energy efficient and invest in tech to make the UK a manufacturer of renewable energy products where we could aim to be self sufficient for energy.
Not make you feel like a grifter has just hustled you.
But I can’t help wondering how much of it will get collected over the five years. Arguably, with a programme of house building, over five years you could theoretically end up with more repaid than was given out, as there should be more properties and electricity accounts in the country in five years time.
However in practice all energy companies have bad debts; people who can’t afford to pay (and there is likely to be an awful lot more folk falling into this category over the coming year), not to mention the small minority who skip from property to property leaving unpaid bills behind them and no forwarding address.
And with inflation set to stay high for a while, the value of the £200 collected over 5 years will erode in real terms.
I wonder if anyone will bring a legal challenge to say they shouldn’t repay the ‘loan’ because they never had an electricity account in October 2022 and never benefitted in the first place?
That's settled then!
Think of the levies currently paid that you have no say in and not really sure where the money is going and if there will be any return / benefit.
As for those who buy a new house / move out of mum and dad's after Oct 22 then I think you need to look at it like any other levy, those who have gone before you will have paid levies towards the early wind farms and solar farms that you will now and sometime in the future benefit from without having paid anything towards. Swings and roundabouts.
Many elderly will likely never repay it back in full and best of luck to them, so new properties etc will cover those losses and the interest payment.