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Energy bill rises and Universal Credit cut will create ‘perfect storm’

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09/08/2021
Citizens Advice has warned that rising energy bills and cuts to Universal Credit benefits this autumn will create a perfect storm for families.

On Friday, the regulator Ofgem announced a £139 increase to the energy cap, taking it to £1,277 a year from 1 October.

It also announced a separate price cap for households with a prepayment meter would rise by £153 to £1,309.

Around 15 million households are expected to see their energy bills increase as a result.

The rises come into force the same month as the government’s planned cut of £20 a week to Universal Credit, which is set to affect six million households.

It will also coincide with the end of the furlough scheme, which could lead to further job losses and more families being pushed onto benefits, Citizens Advice said.

James Plunkett, executive director at the charity, said: “This price hike could lead to a perfect storm for families this autumn, hitting people at the same time as a Universal Credit cut and the end of furlough. It’s particularly worrying given families on Universal Credit are far more likely to already be in energy debt.

“With bills rising and incomes falling, many families will find it hard to escape. For many, debt will be the inevitable consequence.

“It all adds to the growing case to rethink the government’s planned cut to Universal Credit and keep this lifeline which has been vital to keeping so many afloat.”

Millions already behind on bills

New analysis from Citizens Advice shows nearly 2 million households are already behind on their energy bills, even before the new price rise and planned Universal Credit cut – an increase of around 410,000 from before the pandemic.

More than one in four (28 per cent) households in which someone receives Universal Credit are behind on their energy bill – seven times the rate among households who don’t receive Universal Credit (4 per cent)

Nearly a quarter of people (22 per cent), equivalent to nearly 6 million households, already say they are worried about paying their energy bills

Universal Credit cut: everything you need to know

When will the cut happen?

The government is set to reduce benefits by £20 a week – equivalent to £1,040 a year – from 6 October. The exact date will depend on the day you receive your Universal Credit payment. That could mean September will be the last month you’re paid your benefit at the existing levels.

How many people will be affected?

Citizens Advice said the cut will hit nearly six million people on Universal Credit. More than a third (38 per cent) of those who’ll see their income hit are already in employment, while one in six (16 per cent) are under 25. Latest figures show roughly 1.9 million families with children will see their benefits cut.

How much could I lose?

While every Universal Credit claim will drop by around £85 a month, the proportion of income claimants will lose will vary depending on their circumstances. Single people under 25 are set to be hit by the biggest drop.

Monthly standard allowances will drop:

By a quarter for single claimants under 25, from £344 to £257.33

By a fifth for single claimants over 25, from £411.51 to £324.84

By 17% for joint claimants under 25, from £490.60 to £403.93

By 14% for joint claimants over 25, from £596.58 to £509.91

Previous analysis by Citizens Advice shows £20 a week is equivalent to six days of energy costs or three days of food costs for a low-income family.

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