Across the UK, people are seeing their energy bills rise as gas prices and the cost of electricity continue to soar. As a result, many households, particularly pensioners and low-income families, are finding it increasingly difficult to afford the home energy they need. With the recent energy price guarantee set to increase on 1 April, many households across the UK are expected to see their bills rise even further. In this article, we will examine why pensioners and low-income households are most affected by energy price rises and explore the various initiatives that are available to help with the cost of living. We will examine the role of energy price guarantees and other measures aimed at making energy costs more manageable for households in the UK.
Fuel Poverty
Energy bills are often a household’s second highest expenditure after rent or a mortgage, with the average household in the UK spending £1,040 each year on energy. This amount has risen by £122 since 2011, now amounting to 12.5% of the average household income.
Prior to the energy price increases of 2021, millions of households already experienced “fuel poverty.” The low income low energy efficiency (LILEE) indicator is how the government calculates fuel poverty. A household is deemed to be fuel poor if it occupies a building with an energy efficiency rating of band D or lower and has disposable income that, after paying for housing and energy needs, is less than 60% of the national median. Thus, the interplay of energy efficiency, household income, and energy prices determines fuel poverty. 3.18 million homes in England, or 13.4% of all households, were predicted to be living in fuel poverty in 2019, according to data from the Department for Business, Energy, and Industrial Strategy (BEIS).
Households with low income
So, why are the poorest households in the UK most affected by energy price increases? The answer lies in the way in which energy prices are determined. The costs of energy are determined by a number of factors, including the cost of energy production, the costs of providing energy infrastructure, and the costs of taxes and levies. These all add up to the final cost of energy that consumers pay.
The poorest households in the UK are typically on ‘prepayment’ tariffs, where energy is paid for in advance. This means that, when energy prices rise, those on these tariffs see their energy bills go up almost immediately. This is in contrast to those on ‘standard variable tariffs’, who are not affected by price changes until the end of their contract period.
The increasing costs of energy can also make it difficult for those on lower incomes to make ends meet. Energy is a necessity for households, and when energy prices rise, those on the lowest incomes are forced to make difficult decisions about which bills to pay and which to miss. This can have a serious impact on their quality of life and their ability to access essential services.
Finally, energy price rises can also make it difficult for households to invest in energy efficiency measures, such as insulation, double glazing and energy-efficient appliances. This can mean that these households are unable to make their homes more energy-efficient, and are therefore unable to save on energy costs in the long run.
Likewise, those who are already struggling to keep up with their current energy costs are likely to be hit hardest by rising energy costs. According to the most recent report published by Citizens Advice, around 1.1 million households are in debt to their energy supplier, with an average debt of £275. This means that those who are already struggling to pay their energy bills are likely to be unable to keep up with their payments if energy costs continue to rise.
In the financial year ending in 2020, the poorest 10% of households spent more than half (54%) of their average weekly expenditure (£298.90) on essentials such as housing (including electricity and gas), food and transport.
Those in the richest 10%, in comparison, spend 42% of their average weekly spend of £1,073.20 on the same essentials.
Pensioners
Pensioners are also another group that are affected by energy price rises harsher than others. The effects of energy price rises are compounded by the fact that pensioners typically spend more time at home than other age groups. This means that their energy use is often much higher than other age groups, meaning that even small increases in prices can have a large effect on the amount of money they have to spend.
Furthermore, pensioners are more likely to be living in older, less efficient homes which are not as well insulated as newer ones. This means that they are likely to use more energy to keep their home warm, adding to the financial strain they face.
The rising cost of energy is particularly worrying for pensioners as they are often on fixed incomes. Any rise in energy prices can have a huge effect on their limited budgets and could lead to them having to cut back on other things they need.
The Government has taken steps to try and help pensioners in the face of rising energy prices, such as introducing a Warm Home Discount and a Winter Fuel Allowance for those over the age of 80. However, these measures are not enough to cover the full cost of rising energy prices and pensioners are still feeling the financial strain.
Furthermore, those living in rural areas are also likely to be disproportionately affected by rising energy costs due to lack of competition and higher energy bills. According to the Citizens Advice report, those living in rural areas are typically paying up to £200 more per year on energy costs than those living in urban areas.
What is the Government doing to help pensioners and those on a lower income?
Schemes and Discounts for Low Income Households:
With energy bills continuing to rise, it is important that consumers are able to access the most cost-effective energy deals available.
One way for low-income households to access a discount on their energy bills is through the government-funded Warm Home Discount scheme. This scheme offers a one-off discount of £140 per year to households that receive certain benefits, such as Pension Credit or Working Tax Credits. Participating energy suppliers must offer this discount to eligible households.
Some energy suppliers also offer additional discounts for those on low incomes or particular benefits. These are often available in the form of a reduced standing charge or discounted unit rates. To take advantage of these discounts, you may need to be a customer of the energy supplier, or provide evidence that you are receiving certain benefits.
Fuel poverty schemes are also available to help low-income households to reduce their energy bills. These schemes offer financial assistance to help households pay for energy-saving measures such as insulation, draught-proofing and more efficient heating systems.
Some local authorities also offer help for low-income households to pay their energy bills. The form of help available varies between councils, but can include one-off grants, a discount on bills or a credit to help meet the costs of a bill.
Schemes and Discounts for Pensioners:
- Warm Home Discount Scheme: This scheme provides a one-off discount of £140 on electricity bills to eligible pensioners. To be eligible, you must be in receipt of the Guarantee Credit element of Pension Credit. The discount is applied automatically, and there is no need to apply.
- Energy Company Obligation: This scheme provides insulation and energy-saving measures to eligible low-income households, including pensioners. This can include measures such as cavity wall insulation, loft insulation, and new boilers. To be eligible, you must be in receipt of certain benefits, including Pension Credit.
- Home Heat Helpline: The Home Heat Helpline is a free and impartial advice service that provides information on saving money on energy bills, as well as information on discounts and schemes available to pensioners. They can provide advice on ways to reduce your energy bills and make your home more energy-efficient, and can also help you find the best energy supplier and tariff for your needs.
- Supplier Tariffs and Discounts: Many energy suppliers offer special tariffs and discounts for pensioners. These can include discounts on gas and electricity bills, as well as special tariffs designed specifically for pensioners. It is always worth checking with your supplier to see if you are eligible for any savings.
It’s important to note that these schemes and discounts may change or be updated, so it’s a good idea to check with the relevant organizations or your energy supplier to confirm your eligibility and to find out the most up-to-date information.