Energy bills are to be frozen at £2,500 a year, Prime Minister Liz Truss has confirmed.
The freeze will apply for the next two years from October 1 under a new Energy Price Guarantee.
It will limit the price that suppliers can charge customers for units of gas.
A new six-month scheme for businesses and other non-domestic energy users, including charities and public sector organisations, will offer equivalent support as is being provided for consumers.
The move is aimed at protecting them from soaring energy bills.
After the initial six-month scheme, the Government has said that it will provide “ongoing, focused support” for vulnerable industries.
The Government will provide energy suppliers with the difference between the lower price and what energy retailers would charge their customers were it not in place.
The moratorium on UK shale has production will also be lifted, with the Government launching a new oil and has licensing round from next week.
It is expected to lead to over 100 new licences being issued.
Truss made the announcement in a statement in the House of Commons on Thursday
“Decades of short-term thinking on energy has failed to focus enough on securing supply – with Russia’s war in Ukraine exposing the flaws in our energy security and driving bills higher. I’m ending this once and for all,” said the Prime Minister.
“I’m acting immediately so people and businesses are supported over the next two years, with a new Energy Price Guarantee, and tackling the root cause of the issues by boosting domestic energy supply.
“Extraordinary challenges call for extraordinary measures, ensuring that the United Kingdom is never in this situation again.”
The typical household gas and electricity bill had been expected to rise to more than £3,500 in October.
Campaigners have warned of the risk to lives this winter due to soaring energy costs.
Speaking at FMQs, Nicola Sturgeon welcomed the announcement of the cap on energy prices.
However, the First Minister warned that people are seeing soaring costs because of a “broken energy market”.
“Can I take the opportunity to welcome the very belated action on energy bills that the new Prime Minister has just announced in the House of Commons,” she said.
“But while I welcome it, can we also be very clear it does not represent a halt to the rise in energy bills.
“Average energy bills right now are just under £2,000. A cap of £2,500 will still see people pay more for their energy.
“And of course, if we go back to the Spring of this year, average energy bills were around £1,200.
“So, people are seeing soaring energy costs because of a broken energy market and the utter incompetence of this UK Government.”
She added: “As things stand, all of the costs of what has been announced today are going to fall on consumers and taxpayers.
“When oil and gas companies making windfall profits should be making a contribution.
“So, I think we can see whose side the UK Government is on today.”
Labour leader Keir Starmer criticised Truss for refusing to tax the excess profits made by oil and gas companies to pay for the cap.
“The Prime Minister is opposed to windfall taxes,” he told MPs.
“She wants to leave these vast profits on the table with one clear and obvious consequence – the bill will be picked up by working people.
“She claims that a windfall tax will deter investment, that’s ridiculous.
“These vast profits are not the reward of careful planning – they are the unexpected windfall from Putin’s barbarity in Ukraine.
“There’s no reason why taxing them would affect investment in the future.”
The GMB union insisted that the plan set out by Prime Minister “only scratches the surface” of what is needed for long-term energy security.
Andy Prendergast, the union’s national secretary, urged ministers to “move at speed” in taking action.
“It is a stain on this government that our nation’s energy supplies are in such a vulnerable state,” he said.
“Today’s announcement only scratches the surface of what we need for long-term energy security.
“GMB calls on ministers to move at speed because the brutal truth is the UK’s energy infrastructure will become even more vulnerable during the next decade, as existing nuclear plants are taken offline.”