People paying default tariffs by direct debit will see an increase of £693 from £1,277 to £1,971 per year, while prepayment customers will see an increase of £708 from £1,309 to £2,017.

The cap is set for six months and could rise further afterwards.

At a glance, this means:

• A 54% rise from the current price cap of £1,277

• Government loans will offset £200 of the annual increase, plus a £150 council tax rebate

• New rate comes in on April 1

• The £200 discount on energy will be paid back over five years through our bills

• The net effect is that bills rise by less in the next year, but fall by less in the years to come

• The plan all depends on the market price of energy falling

Here’s a full breakdown of what this all means for you:

What is an energy price cap?

The price cap is a limit on the maximum amount suppliers can charge for each unit of gas and electricity you use, rather than a price cap on your overall bill.

It’s important to note here the price cap puts a limit on each unit of energy – in other words, the more energy you use, the more you will pay.

The price cap will also apply to the maximum daily standing charge for your home to be connected to the grid.

The cap does not apply to anyone on a fixed-term tariff.

If i’m on a pay-as-you-go tariff, what does this mean for me?

For customers with prepayment meters the price cap will go up by £708 to £2,017.

As noted above, this does mean that this is the maximum anyone will pay – if you use more energy, then it will cost more.

So, why does Ofgem want to change how the price cap works?

Since the start of this year the price that your energy supplier has to pay to buy gas has spiked around fivefold, a lot of this change has happened since September.

Yet what suppliers can charge households is limited by the energy price cap, meaning they cannot pass on these rising costs to you.

Ofgem wants to make changes to the price cap so that massive price rises will not result in large numbers of failures in the future.

What’s the plan?

Households will be supported by £350 worth of cuts to soften the blow, the government said.

A government loan will mean suppliers will be able to offset the annual increase to energy bills by around £200.

Additionally, Chancellor Rishi Sunak said 80% of all homes in England will benefit from a £150 council tax rebate to help with the cost of energy in April.

Setting out his plans, Mr Sunak told the Commons: “We are going to give people a £150 council tax rebate to help with the cost of energy in April and this discount won’t need to be repaid.

“And I do want to be clear with the House, that we are deliberately not just giving support to people on benefits.

“Lots of people on middle incomes are struggling right now, too. So we have decided to provide the council tax rebate to households in bands A to D. This means around 80% of all homes in England will benefit.”

He added: “And the third part of our plan will provide local authorities with a discretionary fund of nearly £150 million to help those lower income households who happen to live in higher council tax properties, and households in bands A to D who are exempt from council tax at all.”

How will that loan be repaid?

Energy companies will be expected to pay the loan back.

That means while customers are protected from the worst of April’s price rises, it is likely they will eventually pay the same amount to their energy supplier in the long run.