Energy announcement: Liz Truss announces price cap will be fixed at £2500 a year for next two years
The fixed cap will come into place from October 1.
Ms Truss vowed the plan would save the average household £1,000 a year.
The move comes on top of the £400 energy bills discount that has previously been announced.
Ms Truss also promised support for businesses struggling with bills for six months, with targeted support for vulnerable firms beyond that.
The move means businesses will see their energy costs capped at the same price per unit - or kilowatt hour (kWh) - that households will pay under the UK Government's new plans.
Ms Truss announced she was delivering on an “energy price guarantee” as she spoke in the House of Commons to unveil plans to limit energy bill rises, spending billions to protect people from soaring prices.
“This is the moment to be bold,” she said. “We are facing a global energy crisis and there are no cost-free options.”
Ms Truss also reconfirmed she would not be introducing a fresh windfall tax – a move that has been repeatedly called for by Labour under the Opposition’s own energy plans.
She said a new round for oil and gas licensing would be launched as early as next week. More than 100 new licences are expected to be subsequently granted.
A new energy supply taskforce will also be formed to negotiate with suppliers to agree long-term contracts.
For domestic users in Scotland, England and Wales the current price cap on each unit of energy means average household bills should be on average no more than £1,971, rising to £3,549 in October and forecast to continue increasing when the next level is set in January.
The energy price cap is not a limit on what a person can pay in total for a year on energy bills, but a restriction on the price that consumers can be charged for an individual unit of energy.
The guarantee on energy costs, which is aimed at saving families and businesses from financial ruin if bills continue to rise as predicted, will be funded by increased borrowing after Ms Truss rejected calls for a windfall tax on oil and gas producers.
Downing Street has indicated Ms Truss will end the moratorium on fracking – the process of extracting shale gas by fracturing rocks with high-pressure water.
On Wednesday the pound fell to its lowest level against the dollar since 1985 amid concerns about the scale of the borrowing required.
But Levelling Up Secretary Simon Clarke told Sky News: “If we fail to act, if we don’t protect the economy against the shock of the size and scale we are talking about, then there is going to be enormous damage.
“In these circumstances I think the country will say and I think markets will respect that this is the most sensible thing to do.
“The Government is clear that a fiscally responsible approach sits at the heart of our plans but we cannot fail to respond to the magnitude of the moment.”
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