Energy bill loan will not be enough to help families with rising costs – we need a plan to insulate more homes
There is no escaping the financial struggles that 2022 will bring – families are already being squeezed as real wages fall with inflation pushing up the cost of day-to-day life.
But for all the hardship now, April is when things will really come to a head. The combination of a record overnight jump in energy bills and an increase in National Insurance contributions will impact the budget of families across the income spectrum.
The National Insurance increase is actually quite progressive – half the revenues come for the most affluent 20 per cent of households. But the burden of household energy bills is very different, as it will be a particularly large part of the budgets of low-income households.
Two successive energy price cap increases will push more than a quarter of households into fuel stress - spending more than 10 per cent of the family budget on energy bills. This is a near tripling of current levels, affecting swathes of society for whom energy bills have not been make or break before.
There is a real chance that this is not just a temporary blip and that energy costs remain high for years to come
The impact will be higher in the North of England than in the South, for families in less efficient homes, and in pension-age households. But many families across the country will be affected and so the government’s universalist strategy makes sense – a £200 “heat now pay later” loan and widespread £150 rebates through the council tax system.
The trouble is the £350 on offer only accounts for half of the typical bill increase. Moreover, it isn’t set to be available until six months after bill increases, so families could fall into arrears from which they will find it hard to escape.
There is a real chance that this is not just a temporary blip and that energy costs remain high for years to come.
We have reduced carbon emissions from our electricity sector, but still rely on gas to set market prices. UK households also remain exposed to international gas markets at home, with five in six homes kept warm by gas boilers. As such, the government is right to be focused on weaning the nation off gas.
More frequent renewable energy auctions, announced this month, will accelerate the move to a zero-carbon power grid – bringing both cleaner energy but more stable and (if we get the system architecture right) much lower bills.
Indeed, there is evidence that net zero policy is already easing pressure on bills. Fixed-price renewable generation is already cutting bills by £15-20 per year, according to Ofgem, a figure that will increase rapidly as low-cost offshore wind capacity surges in the next few years.
There is also much to do inside our homes, frequently – and correctly – referred to as some of the oldest and coldest in Europe. We need an effective nationwide efficiency policy. The reduction in our effort to insulate our homes has been brought into sharp relief by soaring energy bills: more than two thirds of families in homes rated F or G on the EPC scale will fall into fuel stress when bills jump this spring.
Frustratingly however, insulating homes and building renewable generators takes time. They are the right thing to do but will not be much solace to families this April facing high bills. That is where the immediate package helps – and even more assistance may be necessary.
Meanwhile, the industry is desperate for policy certainty that will allow the net zero transition to continue apace, easing pressure longer term.
David Willetts is a Conservative peer and President of the Resolution Foundation.
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