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Government must act to stop 'fantasy' energy price demands

Government must act to stop 'fantasy' energy price demands
4 min read

For people living in poverty, gas and electricity have been difficult to afford for years. Many families are forced to cut back on energy even in normal times. These are not normal times, and energy consumption has gone from being expensive to being, for large parts of the population, a sheer fantasy.

The depth of fear many feel today about the coming months is a key reason the Joseph Rowntree Foundation is calling for a comprehensive emergency package to kick in as soon as possible. With the political will, the new prime minister has it within his or her power to prevent the looming catastrophe – by acting as creatively and as quickly as the introduction of furlough during the early stages of the pandemic. 

An emergency package won’t do everything it needs to but it will buy some breathing space to fix the underlying problems of the energy market, and a social security system that has left people on incomes that can’t weather even much smaller shocks, having been hollowed out by a decade of cuts and freezes 

There is a very real risk that energy may increasingly become a luxury only the wealthy can afford

We have analysed the Ofgem price cap which will see average bills rise to £3,549 per year from October and new Cornwall Insight forecasts which shows bills could average £6,000 next year. We have developed a robust methodology to apply these figures to look specifically at their impact on households on low incomes, and it is now a quick calculation to see how badly they will hit – but the numbers surprised us so much we  triple checked them because they looked too bad to be true.  

The average low-income family will pay four and a half times more for energy in 2023/24 compared to 2021/22. Single parents will hand over almost two-thirds of their income after housing costs, putting their children at a very real risk of hunger.  

Most astonishingly of all, some single adults will see their finances more than wiped out by energy bills that make up almost 120 per cent of their income after housing costs, leaving many destitute. For pensioners in the same financial situation, energy will make up around 40 per cent of their disposable income. 

It is impossible to think a care worker or a shop assistant will have to scramble to find hundreds more pounds to pay for their heating or that the entirety of someone’s income for a whole year will be less than their energy bill. But that’s what these figures suggest will be the case unless significant further steps are taken quickly. 

There is a very real risk that energy may increasingly become a luxury only the wealthy can afford, as low-income families will endure unthinkable bills that take a bigger bite out of their household budgets than those of the better off. 
 
With no end in sight, many of those who will struggle the most this winter will see their health affected and all aspects of their life diminishing as trying to pay for essential heating and power becomes all-consuming.  
 
This situation will make many of the injustices in our economy worse. In 2023/24, the poorest fifth of families, forecast to have an average income of £11,600 after taxes and paying for housing, will pay out, on average, almost half (46 per cent) of their income on energy bills.  

However, middle income families, with average incomes of £31,400, will spend less than half that share – a still historically large 19 per cent – paying the same bills. 

The crucial tests for any plan will be whether help is weighted toward the worst off, whether it is sufficiently large in scale and whether it covers the whole period of high prices – which now look set to last into next winter.  

Given the huge impact of these price rises on everyone, these tests are ones the next prime minister would be well advised not to fail.  

Peter Matejic is chief analyst at the Joseph Rountree Foundation

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