Energy price hikes hit poorest people hardest: millions are fuel poor

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on ONS’s publication of data on rising energy prices impact on cost of living, showing price hikes hit poorest people hardest: millions are fuel poor.

Key points from publication:

Two thirds (66%) of people say the cost of living has risen in the past two months.
Of these people 79% said rising gas and electricity prices were a factor.
Last October the energy price cap rose 12% – and it’s set to rise far more in April.
In the past 12 months, energy prices have risen faster than any time since 2009, with gas up 28% and electricity 19%.

Sarah Coles says:

“Energy prices have hit poorest households hardest, and we’re expecting April to deliver a gut punch to millions.

“People on lower incomes are forced to spend a larger proportion of their income on essentials, so price rises have an enormous impact. In the year to April 2020, the 10% of households on the lowest incomes used 7% of their weekly spend on energy, while for the richest 10%, it was just 2% of their spending. It means that those on lower incomes have an enormous battle to cut costs at times like this.

“Energy price hikes also cause enormous problems for people in draughty or poorly insulated houses. The energy rating system classes better insulated houses from A-C. Those rated D spend a fifth more on energy than those rated A-C, those rated F spend more than double, and those with a G rating spend three times more – an average of £3,071.

“For people in inefficient houses and on low incomes this is a toxic combination. The government tracks those with an energy efficient rating of D or lower who are below the poverty line when housing and fuel costs are taken into account – known as being fuel poor. 3.18 million UK households are currently in this horrible position, including over half of those on low incomes. To make matters worse, we can expect this figure to ramp up significantly over the coming months as prices rise further.

“The good news is that we’re doing everything we can to bring our costs down and stretch our cash to cover our bills. A third (32%) of those who said their costs had risen recently also said they’re cutting back on energy use. More than half are cutting back non-essentials (53%) and a quarter (26%) are eating into savings.

“But while signs of cost cutting are incredibly positive for those with plenty of room in their budgets, for people whose finances were already on a knife edge, it just won’t be enough. They face making some impossible choices about heating and powering their homes, which could have a profound effect on them and their families. And while things are already difficult enough now, when prices rise again in April it will push more and more people into real hardship.”

The price rises

The global energy price spike started when the economy came back to life last year. As demand for gas increased, we faced lower stock levels and supply problems. We import around 50% of gas, so had to buy it on the international market – where booming demand overwhelmed supply. The wholesale price of gas in January was almost four times higher than in early 2021. We also make a third of our electricity from gas, so it pushed those prices up too.

Wholesale price rises get passed on in fits and starts thanks to the energy price cap. It was hiked 12% in October, and is expected to go up by as much as £600 in April. In the interim, those coming to the end of a cheap deal or losing it because their provider went under haven’t been able to find anything cheaper than the price cap – so have faced price rises even without the cap shifting.