This post is by Jennifer Dicks, project manager in the environment team at Cambridge Econometrics.
This week, in response to continually rising gas prices, the industry regulator Ofgem increased the price cap for energy bills to £1,971, a £693 annual rise on the previous cap. A separate cap for prepayment customers increased by even more, from £1,309 to £2,017. This increase in household energy costs will add further to the rising cost of living in the UK, now at its highest level in thirty years.
Fuel poverty will become more widespread
For many vulnerable households on low incomes, an increase in their energy bill will force them to make difficult choices: about whether to heat their home, what food they can afford, how often they can wash their clothes or take a hot shower or bath.
Households facing dilemmas such as these are often living in fuel (or energy) poverty. Examining who is vulnerable to this is a major objective of the CREDS-funded FAIR project. This research project has identified that “households with low incomes (including older people, lone parents and those with health conditions) and those living in properties that are older and less energy efficient are at particular risk”, along with renters and young people. Where you live can increase your vulnerability too, with those in inner urban areas generally at higher risk of fuel poverty.
In 2022, the costs of essential goods and services are expected to keep heading upwards, as businesses protect their profits by putting up prices. For many households in fuel poverty, difficult daily energy decisions will be further exacerbated as their finances come under increasing pressure.
The national fuel poverty charity National Energy Action (NEA) estimates that the increase in the energy price cap will plunge a further 1.5 million households into fuel poverty, taking the total number in the UK to six million. This will be a 50 per cent increase in just over six months.
The government’s support doesn’t go far enough
Clearly, many UK households will require support from the government to help them through the difficulties ahead. This week the chancellor outlined the Energy Bills Rebate package: a £200 rebate on energy bills for all households from October and a £150 discount on council tax for English households in council tax bands A – D (with equivalent discounts for devolved nations). The rebate is, in effect, a long term loan as it will be paid back to the Treasury via approximately £40 a year on all household energy bills over five years.
In addition, there will be a £144 million for local authorities in England to help lower income households who do not qualify for the £150 council tax relief. The £350 support package only covers around half of the total increase in average energy bills; even if a household uses less energy than average, it is unlikely to cover the whole cost increase.
What’s more, the new measures announced fail to target vulnerable, fuel poor households. The Energy Bills Rebate gives the same amount of support for those on a low income in a draughty, cold home, as those living on a comfortable income in a well insulated, efficient home. The £144 million fund for local authorities to help low income households seems meagre compared to the £9.1 billion cost of the rebate.
Long term solutions will solve other issues
The measures announced this week are arguably a short term solution to the immediate energy price crisis. They do not address other major goals such as levelling up and the pursuit of net zero by 2050. Solutions in the longer term should go hand in hand with an accelerated approach to net zero. The current crisis is a stark reminder that the UK needs to reduce its dependency on gas, and its exposure to volatile wholesale gas prices, by upping the pace of energy system decarbonisation and by cutting demand for energy overall (see our work at CREDS on Positive Low Energy Futures)
In practice, this means that, at the same time as greater deployment of renewable energy sources, the focus should be reducing our demand for energy overall through the mass retrofit of homes. Measures that improve the energy efficiency of the UK’s leaky and draughty housing stock, through installing insulation, double glazing and low carbon heating technologies like heat pumps, are a win-win. They give people warmer, more comfortable homes at a more affordable running cost.
Had the level of funding committed through the Energy Bills Rebate been spent over the last few years on encouraging or supporting householders (in particular, those experiencing fuel poverty) to install energy reduction measures, it could have had a major impact on energy demand and would have been more effective at shielding households from the current crisis. To illustrate, it could have funded loft and cavity wall insulation in 11.7 million homes, installed double glazing in 1.2 million homes or paid for over 750,000 heat pumps.
In the medium to long term, households living in, or at risk of, fuel poverty, who often live in inefficient homes, should be supported first as part of an ambitious national retrofit programme. A strategy like this, which is based on reducing the UK’s reliance on fossil fuels and the energy needed to maintain or improve living standards, is the best route to support and improve the resilience of those most vulnerable, while also accelerating the UK towards net zero.