Low-income households will be left an average of £209 short on their energy bills this financial year, new Which? research has found, as the consumer champion calls for an energy social tariff to protect the most financially vulnerable.
Even with the government’s decision to keep the Energy Price Guarantee at £2,500 for an average household until July, Which? research has found that millions of low-income consumers will still face higher energy bills this financial year.
Although energy prices are predicted to drop to around £2,000 for the average household from July, consumers will still be paying almost double the amount they paid before the energy crisis began. The Energy Bill Support Scheme – which provided an additional £400 to all households in the UK from October 2022 – March 2023 – has also ended.
Which? predicts that this will mean that the poorest 10 per cent of households will have to spend an average of £209 more on energy this financial year than last.
Whether a household falls into the poorest 10 per cent of households depends on both income and family size. For example, a single person household in this group would earn less than £9,800 per year, while a couple with two children would earn less than £20,500 after taxes and benefits are taken into account.
The consumer champion estimates that despite the lowest income households typically using less energy, they will be £75 worse off a year than a household with average energy consumption – who will spend £135 more on energy bills next financial year.
This is because the average low-income consumer uses less energy than those on higher incomes so they will not benefit as much from lower energy prices but will still feel the loss of £400 of additional support from the Energy Bill Support Scheme.
Higher costs could be especially difficult to manage for prepayment meter users – who are typically on lower incomes – as they cannot spread costs across the year and would see a spike in costs during the cold winter months.
The government does not currently have an effective means of targeting financial support towards those on the lowest incomes in time for this coming winter.
Ministers have announced that cost of living payments to those on qualifying benefits will continue. However, this will leave low-income households who are struggling to make ends meet but do not qualify for benefits out in the cold.
A properly targeted social tariff – which is a discounted energy rate for those most in need – is desperately needed to ensure energy affordability for those who need it most. Recent Citizens Advice proposals have shown how a social tariff could be designed to effectively target support where it is most needed. This would be based on both household income and energy usage, without creating a cliff-edge based on benefits eligibility.
Which? recommends that the government should introduce a social tariff along these lines as soon as possible. The 2022 Autumn Statement committed to having a new approach to consumer protection – such as a social tariff – in place by April 2024 and the government needs to take action on this as a matter of urgency.
Rocio Concha, Which? Director of Policy and Advocacy, said:
“It’s hugely worrying that consumers on the lowest incomes could be left over £200 worse off on their energy bills this financial year due to reduced government support.
“With millions of low-income households across the country already struggling to make ends meet, the government urgently needs to introduce a properly targeted energy social tariff to ensure the most financially vulnerable are able to heat their homes.”
Notes to editors
Which? cost of living campaign
The consumer champion launched a campaign calling on businesses in essential sectors – supermarkets, telecoms and energy – to do more to help their customers through the cost of living crisis. More information on the campaign is available here.
Which?’s analysis uses the following sources:
Unit rates and standing charges from previous Ofgem energy price caps and the Energy Price Guarantee.
Forecasts for the Ofgem energy price cap from Cornwall Insight, published on 15 March 2023.
Estimates of monthly usage from analysis of 2020 and 2021 average daily consumption data from the UCL Smart Energy Research Lab.
Estimates of energy expenditure for consumers in the lowest income decile from the 2020/21 Living Costs and Food Survey.
The annualised figures presented for the Energy Price Guarantee and Default Tariff Price cap are based on a ‘typical’ energy user as defined by Ofgem. This means consumption of 2,900 kWh of electricity and 12,000 kWh of gas.
The Which? analysis of how much more consumers will actually be spending over the next 12 months instead uses more specific estimates of consumption across the year and the average consumption levels of consumers on low incomes to give more accurate predictions.
Median usage is calculated on a monthly basis from the UCL Smart Energy Research lab data and over a year this amounts to 12,185 kWh of gas and 2,966 kWh of electricity. For low-income households, Which? estimated levels of consumption based on the expenditure of those in the bottom 10% of incomes in the 2020-21 ONS Living Costs of Food Survey. Income deciles are based on post-tax income and also adjusted for family size (i.e bigger families require larger incomes). The estimated levels of consumption for this income decile are 8,906 kWh of gas and 2,289 kWh of electricity.
The income thresholds included (£9,800 for single person household and £20,500 for a two-adult, two-child household) are from the Households Below Average Income statistical release and are for the 10th percentile of incomes.
For this research, Which? assumed consumers faced the unit rates and standing charges from the April – September 2022 direct debit Ofgem energy price cap and the Energy Price Guarantee for October 2022 – March 2023. Which? estimated monthly consumption as an average of the 2020 and 2021 levels in the UCL SERL data. From this, Which? estimated total bills and then subtracted monthly EBSS payments of £66 or £67 during the October – March period.
For 2023 – 2024 prices, Which? used the published unit rates and standing charges for the EPG in April – June 2023. For July – September and October – December, Which? used the Cornwall Insight predictions for the Ofgem price cap published on March 15. As there is no prediction yet published for January – March 2024, Which? assumed prices will stay at the level predicted for October – December 2023. Cornwall Insight has since released new predictions on 31 March 2023 but these were not published in enough time to be incorporated into this analysis.
Which? estimated a level of gas and electricity consumption for consumers on the lowest income decile by using the estimates of expenditure on gas and electricity in the Living Costs and Food Survey for 2020/21. Using the Ofgem default tariff cap levels during 2020/21, Which? estimated the level of consumption required to meet the LCFS estimated levels of expenditure. Which? then assumed that this total level of annual consumption was spread across the year at the same proportion as a median-usage household in the UCL SERL data.
All estimates used the standing charges and unit rates for the direct debit default tariff cap cap and EPG. The Budget 2023 confirmed that prepayment meter prices would be the same as direct debit prices from April 2023 onwards.
A link to the full report will be available here.
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