Why are energy bills increasing?

The April energy price cap rise has caused average energy bills to surge by over 50%, tipping the number of UK households in fuel poverty to over 6.5mn.

An unprecedented crisis

Energy bills have shot up again. This is because, on 1 April, the energy price cap rose so that the average annual direct debit default tariff energy bill is now £1,971, when it was previously £1,277. This is £164 a month, on average, when previously it was £106. The cap rose because of sustained increases in the wholesale price of gas.

The news is even worse for prepayment meter customers. Before the April price cap rise, prepayment meter customers were paying, on average, £1,309 annually but will now be paying £2,017.

To help demonstrate the impact this is going to have on households, we’ve worked out what energy costs are in terms of a weekly shop. The pictured basket of shopping costs £14.40. The price cap increase means that households are paying £14.40 extra every week just on their energy bills. That’s money that they now can’t spend on these essentials. This is an unsustainable situation.

One in four UK households in fuel poverty

National Energy Action (NEA) estimates that the number of UK households in fuel poverty following the April price cap rise will go up by 2mn, from 4.5mn to 6.5mn, an increase of more than 50% in just over six months. This means that almost a quarter of all UK households are in fuel poverty.

More households in fuel poverty means more households falling into debt, more households cutting back on other essentials, and more households rationing their heating to unhealthy levels. We are seeing more demand for our energy advice and income maximisation services, and more examples of struggling households resorting to practices such as only heating one room, wearing coats indoors and using public places such as libraries to stay warm.

What is the price cap?

The energy price cap puts an upper limit on the amount that suppliers can charge customers on default tariffs (also known as standard variable tariffs). It was introduced by the government and is administered and calculated by the energy regulator Ofgem. It applies to default energy tariffs, whether paid by direct debit, standard credit or a prepayment meter. Prepayment meter customers pay more than direct debit customers because Ofgem says it is more expensive for suppliers to service them.

The price cap limits the rates a supplier can charge for their default tariffs. These include the standing charge and price for each kWh of electricity and gas. It does not cap the total bill, which will change depending on how much energy is used, but Ofgem presents it in terms of an average user’s annual bill, to simplify things for the general public.

Our fuel poverty estimate

NEA bases its projections on the 10% definition of fuel poverty – this gives a realistic picture of the scale of fuel poverty in periods of more volatile energy prices. The government’s estimates for England are based on the efficiency of homes, which is not sensitive to changes in energy prices. Our projections are broadly in line with robust analysis by the Resolution Foundation surrounding ‘fuel stress’, which is also based on the 10% fuel poverty metric, but for England only.

What the government needs to do

The UK Government needs to step in to alleviate the increasingly desperate situations the most vulnerable households are finding themselves in. NEA is calling for:

  • A one-off rebate to low-income households that doesn’t have to be paid back
  • The expansion the GB-wide Warm Home Discount so that everyone who is currently eligible automatically receives more support without increasing energy bills for other consumers
  • An expansion of the Winter Fuel Payment to an additional 2.4 million low-income, working age households across the UK
  • New mechanisms to accelerate the repayment of utility debts across the UK
  • Deeper price protection or a new mandatory social tariff to help make energy more affordable for low-income energy customers