The “vast majority” of households will receive £350 of help to take the “sting” out of rising energy bills, the chancellor has announced.

Rishi Sunak said 80% of all homes in England will get a £150 discount on their council tax bill in April, while all domestic electricity customers will get £200 in October off their energy bills.

The latter amount will be repaid over five years, starting from next April, although the council tax rebate will not need to be paid back.

Live updates and reaction as chancellor reveals measures to help with rising cost of living

This is aimed at limiting the effect of price rises in April, but the money will be recouped from consumers in the following years in equal £40 instalments so the loans can be paid back as energy prices fall.

Households in council tax bands A, B, C and D will be given a rebate funded by government grants.

Councils will also be given almost £150m to help lower income households who live in higher council tax properties and households in bands A to D who are exempt from paying council tax.

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“Just as the government stood behind the British people through the pandemic, so we will help people deal with one of the biggest costs they now face: energy,” Mr Sunak said.

The announcements from the government represent a bid to help millions of households struggling with the increasing cost of living.

Energy bills continue to rise, with the regulator Ofgem confirming on Thursday that there will be a 54% rise in the price cap from 1 April to £1,971 due to soaring wholesale gas prices.

Worse is yet to come for energy costs

Paul Kelso

Business correspondent

@pkelso

At £700, the energy price cap increase announced by Ofgem is every bit as bad as feared, and worse is yet to come.

The regulator’s calculation, based in part on soaring gas prices over the last six months, is at the upper end of analyst’s predictions and will take the maximum annual dual-fuel bill for “typical use” to £1,971 from 1 April.

That’s 54% more than the price cap that was applied in October, and a remarkable 184% up on the rate of £1,024 that applied until last April.

The impact will be felt by all but the most affluent households and acutely by the least well-off.

It’s estimated that another two million households will now be forced into fuel stress – defined as those spending more than 10% of their budget on fuel – taking the total to more than six million.

Even families on median incomes will notice an extra £50 a month on their budgets and for some it will be more – the price cap is not the maximum that can be charged to higher users, only a cap on “typical” consumption.

It is the sort or fundamental change to the cost of living that would beg a substantial response from government, even were it not about to add £600 to average tax bills on top of an imminent rise in interest rates and with inflation running at more than 5%.

Chancellor Rishi Sunak is ready to respond with what has been briefed as substantial, targeted support, but it will not be the last time he and the prime minister face pressure over this issue.

The wholesale price cap reflects prices over the previous six months and with wholesale gas markets currently settled at levels four times higher than historic norms, another increase, perhaps as high as £2,400, looms in October.

It means energy prices will rise by £693 a year for millions of households who are on their energy supplier’s default tariff.

Customers on prepayment meters will see the price cap increase by £708 to £2,017.

“Without government action, this could be incredibly tough for millions of hardworking families. So the government is going to step in to directly help people manage those extra costs,” the chancellor said.

Read more: What is the energy price cap and why will bills rise so sharply?

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4:00

Why are your bills going up?

Mr Sunak ruled out cutting VAT on energy bills, saying such a move would “disproportionately benefit wealthier households” and become a “permanent government subsidy on everyone’s bills”.

As well as rising energy costs, households face pressures in other areas.

Also on Thursday, the Bank of England raised interest rates from 0.25% to 0.5%, the first back-to-back increase since 2004.

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1:10

‘People skip meals to pay for energy bills’

It means higher monthly payments for those on certain types of mortgages and comes amid rising inflation which is pushing up prices.

Households also face a 1.25 percentage point increase in National Insurance contributions from April.

The government has come under pressure to scrap the latter policy – which will generate revenue to tackle backlogs in the NHS and fund social care – but both the chancellor and Boris Johnson have said they are sticking to it.