Over one-in-three (35 per cent) English households, equivalent to 7.2 million households, will see higher energy bills this winter than they did last winter, including almost half (47 per cent) of those in the poorest tenth of households, according to new Resolution Foundation research.
Ofgem is expected to announce a reduction in the energy price cap from October, with typical annual energy bills falling from £2,100 last winter (2022-23) – thanks to the Government’s Energy Price Guarantee (EPG) and universal £400 energy support payments – to around £1,925 this winter (2023-24), largely driven by falling wholesale gas prices.
But the headline reduction in bills by almost £200 masks wide variation for households. Although the price per unit of energy is falling, this will be offset by a rise in the daily standing charge, and the fact that last winter’s universal £400 energy support is not being repeated.
As a result, the biggest falls in bills will be seen by households who use the most energy – while households who consume relatively little energy will face higher energy bills this winter than last.
The Foundation calculates that households that consume less than four-fifths (79 per cent) of typical gas and electricity consumption will see higher bills this winter, with over a third (35 per cent) of English households falling into this category. This rises to almost half (47 per cent) of England’s poorest tenth of households.
These additional costs will often be significant. Around one-in-eight households (13 per cent, equivalent to 2.7 million households) will see winter energy bills increasing by £100 or more this year, rising to almost a quarter (24 per cent) of those in the poorest tenth of families.
The Government is offering Cost of Living Payments totalling £900 during 2023-24 (up from £650 in 2022-23) to around eight million households. However, the Foundation warns that the rising cost of other essentials – such as food bills, which are up by £960 on average since 2019-20 – mean this is unlikely to stop another winter of financial hardship.
The 2.3 million families in the poorest fifth of households who don’t receive benefits – and are therefore unlikely to be eligible for Cost of Living Payments – could be hit hardest.
The Foundation also notes that having wound down previous energy support packages, the Government is likely to miss its own April 2024 deadline for having ‘more targeted support’ for low-income households struggling with energy costs.
Rowing back on a previous suggestion of using a social tariff, the Government appears instead to be opting to reform the Warm Homes Discount (WHD) scheme. However, this only offers £150 in support, and has major eligibility issues leading to three-in-ten of the poorest tenth of households missing out. This is not a credible long-term solution, the authors warn.
Looking to the future, the Government also needs to make more rapid progress on reducing the UK’s high level of gas dependency. The UK stands out among G7 nations for reducing investment in renewables as a share of GDP in 2022, and lags European peers in heat pump installations (with just 2 per 1,000 households in 2022 compared with 15 per 1,000 in the Netherlands, 20 per 1,000 in France and 69 per 1,000 in Finland).
Additionally, the UK remains slow on home energy efficiency, with rates of insulation delivered through Government schemes falling by 45 per cent in 2022 (on already poor 2021 levels). Improving on this record has the potential to bring substantial benefits to households, as heating the average EPC E-rated home this winter will cost £57 per month more than one rated at EPC-C.
Jonathan Marshall, Senior Economist at the Resolution Foundation, said “Ofgem is set to announce that the typical household energy bill will fall this winter, but more than one-in-three households across England will be shocked to discover that their energy bills could actually be higher this winter than last winter. This increase will be particularly acute for England’s poorest families, a quarter of whom will spend at least £100 more on energy bills this winter compared to last year.”
“With these energy bill increases coming on top of a prolonged period of fast-rising food and housing costs, the cost of living squeeze is far from over. And, although Government schemes have improved their targeting of support throughout the crisis to those most in need, significant gaps remain which should be urgently addressed to help the most vulnerable get through the challenging months ahead.”
“In the longer term, the Government needs to reduce the UK’s dependency on gas, and improve the state of our home insulation, to prevent the winter energy crisis from becoming an annual occurrence.”