26 Aug 2022

Rising energy prices: the urgent need for action

This morning, Ofgem confirmed that the energy price cap will rise to £3,549 per year from October. This sets the maximum amount most households will have to pay on energy bills (for some, including those on heat networks, bills could be even higher). Predictions from Cornwall Insight indicate that it could rise as high as £4,266 a year in January, just as household use will be increasing the most. This is simply unaffordable for thousands of households across the country; energy bills of £4,266 would take up 14% of the national median income, 21% of the benefit cap outside London and 44% of the national state pension. This would push thousands of households into fuel poverty (households are classed as being in fuel poverty when more than 10% of the household income is spent on fuel.)

This will have a particularly acute impact on social housing tenants. As our cost of living briefing shows, households on the lowest incomes (many of whom live in social housing) are already facing a higher rate of inflation than those on the highest incomes. People on the lowest incomes had little scope to cut back on discretionary spending even before the current cost of living crisis; analysis by the Resolution Foundation shows that the poorest 20% of households were spending almost 60% of the income left after covering housing costs on essential items (food, fuel, clothing and transport). Many households are already cutting back on essentials and face the stark choice of prioritising heating or eating this winter. MRI’s Resident Voice Index found that 68% of social housing residents were worried about being able to meet normal monthly living expenses all or most of the time – and that was from a survey between late March and early May.

This is a key concern for our members and for social landlords across the country. Social landlords are taking a range of actions to support residents under financial strain and should try every avenue possible to help residents manage through this ongoing cost of living crisis. This can include:

  • Providing financial advice and income maximisation support
  • Referring residents on to external sources of support, such as local Citizens Advice and foodbanks
  • Advising residents on practical measures to reduce energy consumption, tailored to meet the needs of their properties – this service is also provided by Groundwork’s Green Doctors scheme
  • Providing fuel vouchers and other discretionary support payments

However, there is a limit to what the public sector can do. The pressures are so great that many households are in negative budgets already (they have more essential spending going out than they have income coming in), even after all avenues of support have been exhausted. Citizens Advice has reported that this applies to 46% of their clients seeking debt advice.

The only thing that will help households with negative budgets and stop thousands more from falling into fuel poverty will be substantial, targeted government action. At a minimum, the government must acknowledge the support announced earlier in the year is no longer sufficient; when this support was announced the cap was only expected to be £2,800 in October. The money allocated in May (much of which is still yet to be distributed) is no longer sufficient to meet its intended purpose. We need urgent action, targeted to help people on the lowest incomes and substantial enough to meet the scale of the challenge. Proposals for a social tariff, such as those from the Resolution Foundation, would address the issue by providing reduced energy bills for households on lower incomes.

But this form of support is unsustainable in the long term. The most sustainable way to reduce household spending on energy is to improve the energy efficiency of our homes and lower the amount of fuel needed to keep them warm. The energy crisis is much worse for people in inefficient homes; homes with an EPC F rating are set to have gas bills almost £1,000 higher than those with an EPC C rating. We need a national energy efficiency program, with government grants prioritising action on low-value homes (irrespective of tenure) which otherwise would not be financially viable to retrofit, as suggested by the Building Back Britain commission.

The outlook for this winter is bleak. Urgent action is needed to help those suffering such extreme levels of fuel poverty. However, unless there is a concerted effort to resolve these issues and insulate our homes, it will continue to be long, cold, desperate winters for years to come. As the Resolution Foundation concludes in its latest analysis, a radical solution is needed.

Written by Annie Field

Annie is a policy and practice officer at CIH.