Most homes to get energy bill relief of £350

Millions of households will receive energy bill discounts totalling £350 to ease the impact of soaring energy bills, the chancellor has said.

Rishi Sunak announced a repayable £200 discount on bills for homes in England, Wales and Scotland from October.

There will also be a further £150 council tax rebate for most households in England, with additional cash for the devolved nations.

Labour criticised the plan, calling it a "buy now, pay later scheme".

The government's support package comes ahead of a 54% rise in annual energy bills from April, with people set to pay an extra £693 a year on average.

Mr Sunak has admitted "even those on middle incomes will feel the pinch".

The council tax rebate will apply from April to homes in council tax bands A to D, benefiting about 80% of households. It will be made directly by local authorities and will not need to be repaid.

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The rebate on energy bills will provide around 28 million households with an upfront discount on their bills worth £200 and suppliers will apply the discount to domestic electricity customers from October, with the government meeting the costs.

However, unlike the council tax rebate, this discount will be automatically recovered from people's bills in equal £40 instalments over a five year period from 2023, when it is hoped global wholesale gas prices will have come down.

The Institute of Fiscal Studies (IFS) said the package would not stop average incomes and living standards from falling over the coming year, but added that lowest paid workers would benefit from National Living Wage and Universal Credit increases.

Energy bills have soared in the last six months due to a record increase in global gas prices. It has led to many smaller energy firms going bust due to suppliers being unable to deliver price promises to customers.

Mr Sunak told the BBC the support would help the majority of families to "adjust" to higher prices.

He said "four out of five English households" would get the council tax discount of £150 pounds in April.

"I think this is a price shock, which is significant enough that even those on middle incomes will feel the pinch of this," he said. "I know people are worried about the cost of living and in particular rising energy prices."

Mr Sunak said it would be "wrong and dishonest" for him to pretend that "we don't have to adjust our higher energy prices". But he said the government could "take the sting" out of higher bills by spreading the cost to consumers over many years.

The chancellor announced a £150m "discretionary fund" to local authorities to provide support to those who happen to live in higher-banded properties, including those who don't pay council tax.

Mr Sunak said the government will also go ahead with an existing plan to expand the eligibility of the Warm Homes Discount so that three million people could benefit from the scheme, compared to one million people currently.

Devolved governments in Scotland, Wales and Northern Ireland are expected to receive around £565m of funding as a result of the council tax and energy rebate in England.

Meanwhile, Northern Ireland will be given £150m to provide comparable support through the Barnett formula next year.

Labour criticised the government's plans, with shadow chancellor Rachel Reeves calling it a "buy now, pay later scheme that loads up costs for tomorrow".

Instead, her party called on the government to scrap the 5% VAT rate on domestic energy bills for 12 months from April.

Labour also wants an extra £3.5bn spent on the Warm Home Discount, increasing it from £140 to £400 per year, and trebling the number of households eligible to 9.3 million, around a third of the UK total.

The party says it would pay for its plans through a year-long 10 percentage point increase to the corporation tax paid by North Sea oil producers on their profits.

The Liberal Democrats have also backed a windfall tax on energy firms to pay more generous support for poorer households.

But Mr Sunak rejected the idea of a windfall tax, arguing it would deter investment in the energy sector. He also rejected a VAT cut, insisting it would "disproportionately benefit wealthier households".

Helen Miller, deputy director at the IFS, said the £200 bill rebate provided short-term relief for households, but was "only delaying the pain", due to customers needing to start paying the rebate back next year.

The IFS also said a higher fraction of households in northern regions would benefit from the council tax cut than in London and the south.

Tom Wernham, research economist at the IFS, said with council tax bands based on property valuations in 1991, "there will be more beneficiaries in northern regions, and they will on average have higher incomes".

He added more than 10% of the lowest income households would not be entitled to automatic support through this scheme, and would have to rely on discretionary help instead.