Martin Lewis tackles confusion over Rishi Sunak's £200 energy 'loan'

·Political Correspondent, Yahoo News UK
·4-min read
Chancellor Rishi Sunak speaking at a press conference in Downing Street, London. Picture date: Thursday February 3, 2022.
Rishi Sunak announced new measures to help Brits struggling to afford their energy bills. (PA Images)

Rishi Sunak's £350 plan to help people with soaring energy bills has been branded confusing at best and "dodgy" at worst, with some experts describing the scheme as effectively a government loan.

On Thursday, Rishi Sunak responded to a 54% increase in the energy price cap by unveiling a £9bn package of measures to help protect consumers from an expected £700 annual increase in energy bills.

The chancellor announced four in five households in England would have £150 wiped off their council tax bills.

He also announced an "Energy Bills Rebate" which would see consumers in England, Wales and Scotland have £200 knocked off their energy bills in October. Bill payers would then have five years to repay that discount in equal instalments of £40 a year.

Sunak said: "The first part of the rebate spreads the extra costs of this year’s energy price shock. In October all domestic electricity customers will receive a £200 discount on their bills. People will then have five years to repay that discount in equal instalments of £40 a year."

A tweet by the Conservative Party on Thursday also heralded the "rebate", but some experts have taken issue with the terminology, pointing out the scheme is not really a rebate but more like a loan.

Conservative tweet about the Energy Bills Rebate
Conservative tweet about the Energy Bills Rebate

Consumer champion and Money Saving Expert founder Martin Lewis addressed the confusion, saying that the plan is effectively two separate "levies". The first will see all bill payers given a £200 payment; the second of which will see everyone pay an annual sum of £40.

He described the scheme as a form of "energy bill levy", tweeting: "Technically it's not really a loan. It's a negative compulsory levy on all bills for one year, then a compulsory levy on all bills for five years."

He also pointed out that bill payers who don't receive the initial £200 will still need to "repay" the £40 a year if they become bill payers at any point of the following five years - such as young people who get their first home.

It is also unclear whether the £40 payment will be subject to VAT.

Matin Lewis's tweet.
Matin Lewis's tweet.

Others have been more critical of the scheme, with Labour leader Sir Keir Starmer calling the Chancellor's proposals "dodgy".

"It's a dodgy sort of 'buy now, pay later' deal that doesn't come anywhere near meeting the cost or the increasing energy bills, and it's really such a small response to a very, very big problem and it's on the minds of so many people," he said.

Ian Blackford, the SNP Westminster leader said: “This Tory con trick is already unravelling before the Chancellor has stopped speaking. This pitiful £200 isn’t a rebate at all - it’s a buy now pay later loan. It beggars belief the Tories are going to force people to pay it back.”

Stepchange, the debt charity, also described the move as having the hallmarks of a loan.

“Given the Chancellor’s £200 energy rebate will be recouped, it’s not unreasonable to conclude it is actually a loan," it said.

Watch: Sunak announces new measures to help with energy price rise

"While we welcomed the support announced yesterday, we’re clear that it won’t plug the gap in household finances for people experiencing debt, including lower income household who may not have access to other support like the Warm Home Discount."

Fact-checking website FullFact said of the council tax and energy bill schemes: "Confusingly the government is referring to these two quite different schemes as rebates. A rebate usually refers to money returned to a consumer or taxpayer after they have paid for a product or paid tax.

"In this sense, the energy bill scheme is not a rebate because people will still have to pay their full energy bill, just over a longer time period.

"It is more akin to a payment plan than a rebate"

Read more: Cost of living: Three key dates that will affect the cash in your pocket

The government has defended the measure, saying it will help take the sting out of the tail of the initial hit and will mean consumers can adjust to higher energy bills over time.

However, the Chancellor's description of the £200 as something bill payers would have to "repay" has mad the confusion worse.

When asked by Yahoo News UK for an explanation as to how the scheme could be classified as a rebate, instead of a loan, the Treasury simply reiterated that the £200 was a rebate and a discount.

A spokesperson for the prime minister also said the scheme was a "rebate", adding that: “The £200 money that’s received by everyone in October will be paid back over time, [and] will be interest free.”

Watch: Energy bills could see further increase in autumn, British Gas boss warns