It has been announced that the average energy bill will increase by 54 percent (£693) per year, affecting 22 million households. This will put the typical household’s energy bill up to £1,971 a year after regulator Ofgem increases the spending cap.
The price hike will take effect on 1 April and follows a 12 percent rise in the price cap in October. Around 4.5 million consumers who use prepayment meters will expect an average increase of £1,309.
Currently, the rate of inflation is the highest it has been in 30 years.
How have we got here and what’s being done about it?
Shadow chancellor and Labour MP for Leeds West, Rachel Reeves, said in parliament:
“This energy crisis has not happened overnight. It’s a decade of dither and delay from the party opposite that has brought us to this point.
“It has been the Tory decade that has led to the announcement of the biggest increase in price of domestic energy since records began. Conservatives aren’t solving the cost of living crisis because the Conservatives party are the cost of living crisis.”
Chancellor Rishi Sunak has promised local authorities a discretionary fund of almost £150m to help them support lower-income households in higher council tax bands. And he pledged to help households with a £200 energy bills ‘rebate’ and by cutting council tax bills by £150 for “those who need it most”.
But critics were quick to point out that the £200 energy bill ‘rebate’ is actually just an interest-free loan to consumers. The £200 will have to be repaid in full by the consumer over the next five years in five instalments of £40.
The squeeze on living
Surging wholesale gas prices are at the root of the spike in energy bills.
But UK families are feeling the squeeze in other areas of life too: an increase in retail prices, national insurance, travel costs, and interest rates are all forcing people to tighten their belts.
From April, national insurance will rise from 12 percent to 13.25 percent for anyone earning between £9,880 and £50,270 a year, and from 2 percent to 3.25 percent for anyone earning above that.
This ‘health and social care’ tax, is to help ease the pressure on the NHS, and to help address the crisis in social care funding. Curiously, during the EU referendum it was claimed that Brexit would free up £350m a week to be spent on the NHS, but this money doesn’t appear to have materialised.
The rate of inflation is currently at its highest in 30 years, having jumped to 5.4 percent in December. This is down to a sudden demand for goods and services after lockdown, as well as supply chain issues created due to Brexit creating new customs regulations at Great Britain’s border with the EU.
Who will be affected?
Essentially – everyone.
However, the country’s poorest families are expected to be disproportionately affected. Together with the cost of rent, energy and food bills form the bulk of their monthly household expenses, which leaves very little room to cut back to compensate for the hike in prices.
In a tweet, Labour MP for York Central, Rachael Maskell, said:
“As people work harder and harder, bills and rent shoot up and people fall into poverty and debt. York is in the top 10 worst hit by the cost of living people are struggling with.”
The Institute for Fiscal Studies expects the average worker would have been almost £13,000 better off by the middle of the 2020s if wages had risen at the same rate as in the 20 years before the banking crisis.