The chancellor’s new help on energy costs will do nothing to tackle the root causes of the energy bills crisis

07 February, 2022

Jennifer Dicks

Reading time: 5 minutes

The increase in household energy costs announced last week will add further to the rising cost of living in the UK, which is now at its highest level in thirty years. In this blog, Jen Dicks argues that long term solutions to rising energy costs need to be addressed urgently.

Last 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, which is now at its highest level in thirty years.

Fuel poverty will become more widespread

For many vulnerable households with 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 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 experiencing fuel poverty.

In 2022, the costs of essential goods and services are expected to keep heading upwards as businesses grapple with protecting their profits by putting up prices. For many households in fuel poverty, their 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. Last week the chancellor outlined the Energy Bills Rebate package to support UK households: 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 £200 rebate is, in effect, a long term loan as it will be paid back to the Treasury via approximately £40 a year on all households’ 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 of their increased energy bill.

What’s more, the measures announced fail to target vulnerable, fuel poor households. The Energy Bills Rebate equals the same amount of support regardless of whether a household is living on a low income in a draughty, cold home, or 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 Energy Bills 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 exposure to volatile wholesale gas prices, by upping the pace of energy system decarbonisation and by cutting demand for energy overall – see our positive low energy futures work

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 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, such as 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.

This blog was first published by Green Alliance.

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