What is the energy bill loan? Martin Lewis explains how the discount will actually work

Last week the Government announced that it would be introducing a £200 energy bill loan for all households in the UK. If you're not sure exactly what this flat rate energy bill discount entails Martin Lewis has explained how it really works in a post on Instagram.

Last week Chancellor Rishi Sunak announced that in October every household in England, Scotland and Wales will be given a £200 discount on their energy bills. However, this £200 isn't a gifted discount to help save on energy bills, it is actually a loan that will need to be paid back at a rate of £40 per year over five years from 2023 to 2027.

What is the energy bill loan?

Unsurprisingly, the introduction of the energy bill loan has caused a lot of confusion. Speaking on Instagram, Martin Lewis, the Money Saving Expert founder explained exactly who will receive the energy bill loan, how it works and how it will be paid off.

'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,' said Martin Lewis of the loan on Instagram. Unlike previous financial support offered by the government, individual households will be unable to opt out of the loan.

'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 financial expert added.

Martin Lewis addressed the confusion over what happens if an individual moves out of a home where they didn't pay energy bills when the £200 discount was applied. He explained that even if you didn't benefit from the £200 loan in October 2022, your energy bills will still be £40 higher if you move into a new home.

'There is no personal loan to an individual. This isn't about, you borrowed money, you pay it back,' he says. 'So if you're living at home with your 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,' says Martin. So if you're wondering why your energy bill is so high this could be why.

Why has the energy bill loan been introduced?

The energy price cap announcement by Ofgem last week revealed that the energy cap would be increased by 54 per cent to almost £700 per household. The new energy bill loan announced by Rishi Sunak has been created to help households with the soaring energy prices.

Rishi Sunak said it was not responsible for energy prices to be kept artificially low by the cap as suppliers were struggling to keep up with rising wholesale costs causing many companies to go bust.

'It is not sustainable to keep holding the price of energy artificially low. For me to stand here and pretend we don't have to adjust to paying higher prices would be wrong and dishonest,' he said. 'Without government intervention, the increase in the price cap would leave the average household having to find an extra £693.'

So come October 2022 whether you like it or not, expect to see the £200 discount on your energy bill.