Following the increase in household energy bills announced in July, opposition is growing to the government’s failure to take action to ameliorate the impact and its profiteering from the VAT on energy bills.
The scale of the problem for households
On the day of the latest cap announcement (28 July) Martin Lewis, moneysaving expert, broadcast a video in which he explained the anticipated rise in the cost of domestic energy, why it was rising so steeply and the likely bills families would face. On top of the increase of 40% already this year, prices will rise by over 70% on October 1 and by a smaller, as-yet unknown, amount in January 2023.
Lewis said that the autumn rise will see average household combined gas and electricity bills rise from £2,000 per annum to £3,500 per annum. the BBC updated this estimate on 9 August. New calculations show that an average bill in January could be £4,266. Last summer average bills were about £1,000 per annum, meaning that by mid-winter, energy bills will have trebled in just 18 months.
Bills are likely to be much greater for those who are disabled or at home all day, particularly those who are less mobile or who have young families. Many families will have to spend up to a quarter of their family income on fuel to keep warm.
Lewis estimated that it would plunge and additional 10,000 into poverty, He called the rise “catastrophic” and urged the government to intervene saying:
“What we need is a willingness to take action and to grasp this, to make sure there are millions of people in this country who don’t face the choice between starvation and freezing this winter, and it’s looking like that is a realistic choice if nothing is done for many”.
The future is bleak
In an article in the Sunday Observer ex-prime minister Gordon Brown called for the government to make an emergency budget, saying parliament should be recalled should the government fail to act.
For the poorest households the rise comes on top of stagnant or shrinking wages or benefits, 12 years of ‘austerity’ and a significant increase in the cost of living which is expected to reach 13% by October. The outlook is poor. Brexit costs will continue to bite. UK grown food shortages (and therefore higher costs) and the higher costs of importing food will persist and the country is expected to be in recession for most of 2023.
The extreme weather both in Europe and in the UK will impact further on this year’s harvests and the Russian invasion of Ukraine is already having a major impact on the availability and price of wheat. Rising energy costs, particularly wholesale gas prices (on which the price cap is based) were in evidence before the invasion but the extreme rise due in October is driven by it and the commitment of EU countries to reduce dependency on Russian gas.
Fuel poverty for millions
National Energy Action (NEA) estimate over eight million, or one third of households, will be in fuel poverty this year and that 10,000 people currently die in the UK every year because of the cold. Cold and damp housing costs the NHS £1.3bn in related illnesses. The poorest households tend to live in the most inefficient and fuel-costly homes with poor insulation, poor draft proofing and an absence of double glazing.
To date the government has treated the problem as one that is short term and of only marginal impact. All households will get £400 off their energy bills in October. This will be in the form of a grant which will be recouped by the energy companies from all consumers over time.
In August 2021, the typical average household energy bill (gas and electricity) was £1,000 per annum. It will rise to £3,500 in October. VAT receipts (5%) on this rise (£2,500) will be £125. So, the government is loaning households £400 each towards their increased costs, but this will be repaid along with a £125 VAT ‘windfall’.
An additional £650 will be paid to people on means-tested benefits and people with disabilities will be eligible for £150, while pensioners receiving the winter fuel allowance will get a further £300. This is still considerably less than the £20 per week the government took back from those on universal credit in October last year.
Should we reduce VAT and cut the green levy?
There have been calls for the government to reduce VAT or reduce the ‘green levy’. The small amounts of money that the government has already committed to pay plus a reduction in VAT and removal of the green levy would be insufficient to enable many people to heat their homes over the winter but may soften the impact for some. Those who are too poor to use any fuel will still have to pay the standing charges which have already doubled to over 50p per day, money that would be better used for fuel.
Energy prices are frequently volatile and highly dependent on political situations beyond a government’s control. Longer term, cutting energy consumption and maximising in-country renewable electricity generation will stabilise prices and may reduce costs. The current crisis may spur governments to do more to conserve and sustainably generate energy, but the initial responses from the two contenders for leadership of the Conservative Party suggests that this is unlikely, and that green investment may be a casualty of the crisis.
Irrespective of longer-term policies, a solution, is needed right now – before the winter. Belgium and Italy have cut VAT, Germany has cut green levies and France has capped rises to 4%. Many people are campaigning to ban standing charges and to keep consumption charges low for low usage, while increasing the cost as household consumption rises.
Lewis has urged local and national governments to work together to set up ‘warm banks’, places where people can go to stay warm over the winter when they cannot afford to use fuel at home. These may be necessary to prevent hypothermia and it’s worth noting that health services will be unable to send older patients home from hospital to unheated homes and risk further illness.
Don’t Pay
Don’t Pay is campaigning for people to engage in “massive non-payment”. The movement started in June and already just under 100,000 people have pledged not to pay their bills on 1 October unless the government reduces bills to an ‘affordable’ level. Those signing up now will cancel their direct debit on October 1 if a million people commit to it. It is aimed at those who pay by direct debit, as those who pay by pre-payment metres have no choice but to pay in advance.
The campaign believes one million non-payers is a sufficiently large critical mass of people to make it very difficult for energy companies to take the enforcement measures open to them. Campaigners hope it will have the same impact as the mass failure to pay the poll tax under Margaret Thatcher’s government and which led to its abolition, or the impact on Thames Water when the company pumped raw sewage into the rivers (non-payment led to a 50% reduction in water bills).
Risks of not paying your energy bill
A number of organisations have expressed concerns about people signing up to the Don’t Pay campaign. The chief executive of Ofgem, Jonathan Brierley, has said it will “drive up costs for everyone across the board … and it will impact them personally”.
Likely personal impacts relate to enforcement action and the potential costs if cases go to court, plus the loss of future credit if credit scores are impacted. Energy companies cannot cut off supplies until measures have been taken to agree a manageable debt repayment schedule and it is likely that they would require consumers to accept pre-payment meters. A short summary of consumer rights and obligations can be found here.
Citizens Advice also advises against not paying and advises people to get in touch with their energy provider as soon as possible to seek an agreement on how bills will be managed and the help that may be available.
The difficulty with the measures proposed by Ofgem, the energy companies and advice agencies is that the current arrangements are not fit for the anticipated scale of the problem. Advice on how to reduce bills from the Energy Saving Trust by turning off lights, having fewer showers and not using a tumble drier would not even cover the cost of the rise in standing charges.
Between a rock and a hard place
Many of the people who have signed up to the campaign and have commented on Twitter are saying that, as they cannot afford to pay in October, they face these risks anyway and have nothing to lose.
- “£300 a month is all I have to buy my food and pay my bills”
- “They literally won’t have the money in their accounts”
- “Millions and millions won’t be able to pay their bills, regardless of whether they want to”
- “This is my logic: I’ll have to cancel my direct debit at SOME point this winter as I just won’t be able to pay, so it might as well be in October as part of an organised protest, rather than in December when my money runs out.”
Others can afford the bills, at a push, but will join the campaign to be part of the critical mass and “help other people who can’t afford to pay”.
If the government will not take decisive action to support those who cannot afford to pay their bills or eat this winter, civil disobedience will follow.
