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“Swift action” needed on energy bills, think tank warns

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Low-income households face a bleak winter, with the soaring cost of energy forcing the poorest to slash their spending by three times as much as richer households just to heat their homes.

Research carried out by think tank the Resolution Foundation suggests households whose incomes fall into the lowest 25% of earners in the UK will have to cut back almost £1 in £4 of “non-essential” spending just to put on the heating, pay the rent and afford food, transport and communication in the first three months of next year.

In contrast, the richest tenth of households will only have to cut back £1 in £12 of their non-essential spending, reflecting the fact that gas and electricity expenditure make up a much smaller proportion of their total outgoings.

In May government announced a £15bn package of energy bill support with households set to receive £400 to help cover higher costs.

At the time, gas and electricity bills for a typical household were expected to rise to about £2,800 a year from October. New forecasts from Cornwall Insights have since suggested that the energy price cap could reach £3,582 a year for a typical household from October, and £4,266 a year from January 2023.

It means a typical low-income household paying by direct debit will have to find an extra £418 to pay their energy bills over the first three months of next year than was expected back in May 2022.

Karl Handscomb, senior economist at the Resolution Foundation, said: “With the support package announced in May now clearly hundreds of pounds per household short of what will be needed and households already facing difficult budgeting decisions, the government will need to act swiftly to put in place the necessary energy bill support this winter.”

Measures announced in May include a one-off £400 payment to all households labelled as an “energy discount” that will be subtracted from energy bills.

Around 80% of households in council tax bands A to D will also receive £150. Any family on means-tested benefits will get an additional £650, pensioners on means-tested benefits will receive £300 and those on a disbility benefit will receive £150,

None of these strands of support are mutually exclusive. For example, if you are a low-income disabled pensioner in Council Tax Band B you can get all of the above, worth £1,650.

A separate report published today by the Institute for Fiscal Studies also highlighted the “worsening outlook” and said: “These measures came in response to an expectation, at the time, that the cost of living would on average be 9.5% higher in 2022-23 than 2021-22, with an expected peak of inflation of 10.2% in the fourth quarter of this year, and with the energy price cap expected to reach £2,800 for a typical household in October 2022 and to remain at a similar level in January 2023.

“Had everything played out as was expected in May, the net effect of all this would have been for the real incomes of low-income households being broadly maintained on average this year, though with significant variation around this.

“Unfortunately, the outlook has got worse once again since May. The cost of living is now expected to be 11.3% higher this financial year, 2022/23, than last, with inflation peaking in the last quarter of this year at 13.1%. The energy price cap is expected to reach £3,600 for a typical household in October and £4,300 in January.”

Outgoing Prime Minister Boris Johnson has admitted that more support is needed to help families cope with the rising cost of living but has declined to make any decisions, saying it is the job of the next Prime Minister.

The battle for number 10 has increasingly focused on how Tory leadership hopefuls Rishi Sunak and Liz Truss plan to deal with rampant inflation, exorbitant government debt and the increasingly crippling cost of living.

After resolutely refusing to hand out more cash to families, Sunak u-turned last week and said he would “find” a further £10bn to help poorer households.

Truss has been promising £30bn of tax cuts and says she will scrap the green levy, a charge added onto household energy bills to fund investment into renewable energy.

But with the race to be the next leader of the Conservative party not set to be announced until 5 September, no new measures will be agreed until then at the very earliest.

Meanwhile talks between Johnson and energy firm bosses last week failed to agree any privately funded aid for struggling households.

Handscomb said helping the lowest-income households “remains the core priority” but added: “Preventing families on middle incomes from falling behind on unaffordable energy bills should also be an important part of any new strategy.”

Almost half of annual household gas costs come from usage between January and March when temperatures are coldest, with the type of housing people live in playing a big part in how much their costs soar.

Resolution Foundation’s analysis shows families in energy-inefficient homes face average monthly gas bills £231 higher than those who live in equivalent homes that already meet the Government’s efficiency target – band C or higher on the property’s energy performance certificate.

Over the 2022-23 winter period this penalty adds up to £849, an average of £141 per month, said the Foundation.

Its analysis showed the daily cost of turning the gas heating on will be £7.34 this winter, even for families in energy efficient homes.

For those in badly insulated homes this figure rises by more than half, some 58%, to £11.60 per day.

Half of the poorest fifth of households live in homes with uninsulated walls.

Handscomb said: “Longer-term, the fact that families in energy-inefficient housing will be facing some of the most severe rises highlights the need to source cheaper energy by rolling out low cost renewables, and for a drive to properly insulate the UK’s homes.”

In the last pre-Covid winter, there were 28,300 excess winter deaths in England and Wales, with the World Health Organisation implying that around 8,500 of these could be attributed to cold homes.

Yesterday reports emerged that Labour leader Sir Kier Starmer was calling for the energy price cap to be frozen at its existing level of £1,971. The Liberal Democrats have argued it should be scrapped altogether.