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Five million households now in ‘fuel stress’ as energy price cap rises to almost £2k

The day that 22 million households have been dreading has finally arrived.

April Fool’s Day sees the energy price cap rising by a record sum to help account for surging wholesale prices – with bills yet to even reflect the impact of Russia’s war in Ukraine.

It was announced in February that customers on default tariffs paying by direct debit would see an average annual increase of £693, from £1,277 to £1,971 from 1 April while pre-payment customers are enduring a hike of £708 from £1,309 to £2,017.

A think-tank specialising in living standards warned that the bill shock would push 2.5 million families in England alone into so-called “fuel stress”, taking the total number of homes spending at least 10% of their incomes on energy to five million.

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Feb: Sunak’s energy bill support

But the squeeze from bills is not limited just to energy with the likes of broadband, mobile and water bills, council tax and national insurance contributions also rising this month, with help from the chancellor to offset the pain only going so far.

Why is my energy bill rising so much?

The cost of energy is, by far, the single biggest driver of rising prices across the economy as it is reflected in a range of things from food to steel prices, at petrol stations and, of course, in your household energy bill.

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While oil costs were going up last year as demand returned following COVID lockdowns, a far more toxic cocktail of price pressures was forcing up natural gas costs.

They hit unprecedented levels in the autumn and spiked again just before Christmas.

European nations have suffered in particular because of historically low stocks at a time of strong competition globally for gas.

In the UK, a total of 31 household suppliers have collapsed over the past 15 months – ultimately paying the price for poor business models that could not handle price shocks.

But only part of that shock is now reflected in the energy price cap.

How worried should I be about next winter?

It is predicted there is worse to come in October, when the cap is due to be updated again.

According to the latest analysis from energy research specialist Cornwall Insight, the average bill could rise by a further £500 as it takes into account, for the first time, the latest wave of raw energy price spikes caused by Russia’s invasion of Ukraine and the resulting sanctions on Moscow.

While it is early days, the prospect of such a rise is frightening heading into the cold winter months, with charities warning that the choice between heating and eating for millions will become even more stark.

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‘People skip meals to pay for energy bills’

What is the government doing to help?

Rishi Sunak had already revealed, in February, how he would support families with rising energy bills.

A £9.1bn package sees 80% of households receiving £350 in total.

It is broken down by a £150 rebate for properties in council tax bands A-D in England.

All properties secure a £200 reduction in energy bills, but only from October, through the Energy Bills Support Scheme.

However, that money will be recovered, gradually, through bills at a later date.

The Warm Homes Discount scheme is being extended until 2025/26 helping three million households while it is estimated that funding for energy efficiency measures will help 450,000 homes cut £300 off their bills.

Why is the chancellor not going further?

Critics have accused him of missing a big opportunity during last week’s spring statement, with Labour calculating that families stand to be more than £2,600 worse off over the next 12 months.

But the government’s message has been consistent: making work pay is best for families and the public finances too as the country’s debt mountain balloons to £2.3trn.

Source: HMT
Image:
Source: HMT

It has pointed to rises in the national minimum wage and national living wage coming into effect today as the crown jewel of its support, saying the lowest-paid 2.5 million people will benefit from the lift.

Business Secretary Kwasi Kwarteng said: “While no government can control the global factors pushing up the cost of everyday essentials, we will absolutely act wherever we can to mitigate rising costs.

“With more employees on the payroll than ever before, this government will continue to stand up for workers.”

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However, the TUC demanded Mr Sunak return to the Commons as millions of families were at “breaking point”.

The union organisation argued there was a clear case for an “emergency budget” to boost the minimum wage to at least £10 an hour and cut energy bills through new grants paid for by a windfall tax on energy and oil company profits.

The TUC also made the case for the taxpayer to provide a “real boost to Universal Credit to cover rising bills”.

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