Tag: price cap

Energy bills are set to fall by 7% on 1 July as the new Ofgem price cap comes into force, but campaigners have claimed the figure could be £500 lower if measures had been taken to mend Britain’s broken energy system.

Insulating homes, reducing standing charges and removing VAT from energy bills would have significantly reduced household’s costs, according to analysis by the End Fuel Poverty Coalition. [1]

With the Ofgem price cap expected to rise again by around 10% in October 2024, the next Government has been urged to implement proposals to bring down the cost of energy from day one.

Chief among the asks for new ministers are to launch a comprehensive plan to bring down standing charges, provide more support for vulnerable households this winter and create more energy efficient homes (by strengthening minimum energy efficiency standards in the private rental sector and laying the statutory instruments needed for the Future Homes Standard and the Clean Heat Market Mechanism).

A majority (57%) of the public also back a social tariff, designed to offer cheaper energy to vulnerable households. 

A social tariff is a discounted energy bill for people in greatest need, such as those people that have low incomes and are elderly, have young children or rely on energy for medical needs. It could be paid for by the £427bn in profits that have been generated by the whole energy industry since the start of the energy bills crisis. [2]

Campaigners have also called for the next Government to introduce a universal, consistent, nationwide, energy debt matching programme funded by the £1.3bn customers are paying through bills for energy debt costs this year. 

A spokesperson for the End Fuel Poverty Coalition commented:

“Throughout the energy bills crisis we have seen sluggish progress on insulating and ventilating our homes, bringing down standing charges, moving to cheaper energy sources and bringing in comprehensive support for vulnerable households with their energy bills.

“Had we seen more concerted action on all these fronts, then the Ofgem price cap coming into force on 1 July would be £1,071.98 – £496.62 lower than what the average household is going to be paying.

“Given energy bills will stay high for the foreseeable future we now need the next Government to act quickly after the election to end energy debt, protect households from the volatile global energy market, bring down bills for good, improve housing standards and make Britain a clean energy nation.”

Warm This Winter spokesperson Fiona Waters said: 

“Energy bills will go up again in October and years of staggering prices have taken their toll. Customers are already £2,500 out of pocket because of Britain’s broken energy system and now we know they are going to continue to be penalised if we don’t see the reforms we need.

“As well as the plans to insulate homes, bring down standing charges and provide support through a social tariff, we also need to see new renewables schemes that, according to the House of Commons Library briefings, are able to generate electricity more cheaply than fossil fuels.”

Juliet Phillips, UK energy lead at E3G added: 

“It’s been repeatedly shown that investing in long-term, clean solutions to fix our broken energy system will bring bills down permanently. 

“The British public backs common-sense proposals to upgrade our homes and ensure that everyone can afford to heat their home. We urge all political leaders to make this a national priority, and take action before energy bills are set to soar again this winter.

“Without action, households are set for another £200 price rise in the Autumn, as the UK remains dependent on expensive foreign gas.”

ENDS

[1] The cost was calculated by taking the following steps:

1. Take published Ofgem unit rates and standing charges for the average household based on current typical domestic consumption values (average use) of £1,568
2. Reduce gas consumption levels to reflect impact of improving insulation in home, in line with the ECIU model (brings average bill to £1,348.80)
3. Reduce unit costs to reflect the lowest available unit cost available on the market (Future Energy Associates database, brings the average bill to £1,292.28)
4. Reduce standing charges and adjust unit costs in line with Future Energy Associates discussion paper, published on 20 June 2024 (brings bill down to £1,124.95)
5. Remove VAT at 5% (£1,071.98)

Figures and methodology peer reviewed by Chris Galpin at E3G.

[2] Data as at 6 June 2024. Researchers examined the declared profits of the 20 firms the End Fuel Poverty Coalition is most asked to comment on. This sample of the industry ranges from energy producers (such as Equinor and Shell) through to the firms that control our energy grid (such as National Grid, UK Power Networks and Cadent) as well as suppliers (such as British Gas). It does not include supply chains nor market trading firms.

Energy giants have pocketed just under £427 billion in profits since the energy crisis started according to a new analysis of company reports. Over £34 billion of these profits (the equivalent of over £1,153 per household) are thought to be made by the firms and business units responsible for electricity and gas transmission and distribution. These are the “network costs” consumers pay for maintaining the pipes and wires of the energy system and are usually paid for through standing charges on energy bills. Standing charges have risen 147% in recent years for electricity and 15% for gas.

The last update was on 1 April 2024 which showed industry profits of £420bn with £30bn from networks and transmission.

The data was compiled by freelance business journalist David Craik. David’s experience has included writing business and city news and features for national newspapers and magazines such as The Daily Mirror, Sunday Times, Wall Street Journal, Scotsman and Daily Express. Much of his content focuses on company financial results and reports in the energy sector and on personal finance issues including wealth management, property, investing and managing household budgets and bills. If any firm wishes to correct the records, please email info@endfuelpoverty.org.uk.

The average household has spent £2,500 more on energy bills since April 2021 than they would have done had prices remained stable. [1]

The data takes into account the Government support schemes that were set up to help households and means that, across the whole country, the additional spend by households on energy over the last three years totals more than £72bn.

The new figures calculated by the End Fuel Poverty Coalition come as Ofgem has lowered the price cap for domestic energy bills by 7%. However, the new cap level means that gas and electricity costs remain 50% higher than in 2021 and are predicted to increase again from 1 October according to expert forecasters. [2] 

Recent research by Ipsos found that a third of people expect their disposable income to fall even further over the next year, while the Stop The Squeeze campaign has claimed that fewer than one in ten of the public feel that the cost of living crisis is over. 

Meanwhile, the head of the energy regulator told MPs on the Energy Security and Net Zero Committee that prices “are still significantly higher than they were before, and when we look further out our best estimate is that prices are going to stay high and volatile over time.”

A spokesperson for the End Fuel Poverty Coalition, commented:

“Years of staggering energy bills have taken their toll and we now know the true cost of the crisis. Customers are £2,500 out of pocket because of Britain’s broken energy system, people are turning to loan sharks to pay their energy bills, millions of people are living in cold damp homes and many are experiencing a mental health crisis driven by high bills.  

“The next Government will need to act quickly after the election to end energy debt, protect households from the energy market, bring down bills for good, improve housing standards and make Britain a clean energy superpower.”

Warm This Winter campaign spokesperson Fiona Waters commented:

“Even with today’s price cap reduction, people will still be paying 50 percent more than they were three years ago for gas and electricity.

“They are simply fed up with being ripped off and used as cash machines by the energy industry that week after week announces billions in profits. People want to see investment in a fairer system, especially during these times of global uncertainty when there could easily be another worldwide energy price shock.

“That’s why thousands have joined our Big Energy Credit Claim Back protest and political parties should listen.  Voters want to see our broken energy system mended with a shift to homegrown renewable energy and a proper insulation scheme which will both reduce bills and increase energy security by freeing us from volatile global gas prices.”

ENDS

[1] £2,500 and £72bn figures calculated as below. Price cap at 30 March 2021 was £1,042 for the average household. All figures based on Ofgem data. Average household energy bill levels include the relevant Energy Price Guarantee and Energy Bills Support Scheme payments where appropriate (the £52bn net cost of those measures are also borne by the taxpayer). Cap data is based on the prevailing typical domestic consumption values at the time – as set by Ofgem.

[2] End Fuel Poverty Coalition records based on Ofgem price cap announcements and (in italics) Cornwall Insight predictions (last checked 20 May 2024)

Italics = Based on Cornwall Insight predictions

Campaigners have called on Ofgem to scrap future January energy bill changes as a five percent hike in prices hits households at the worst possible time.

The Warm This Winter campaign has called the increase a step too far for ordinary households in the UK, many of whom face the choice between eating and heating.

A spokesperson for the End Fuel Poverty Coalition commented:

“Struggling households are facing an assault from all sides. Energy bills are going up just as winter bites hard, Christmas debts have to be paid off and the ongoing wider cost of living crisis continues into another year.

“Ofgem needs to abolish this January price hike. The cruel impact of a change in bills at this time of year can’t be underestimated.

“We criticised the policy strongly when it was introduced as we feared this would be the result of it – bills going up at the worst time of year.

“Given the way the price cap is structured, it is unlikely we’ll ever see a decrease at this time of year. Changing the price cap three times a year would be enough to pass on any reductions in wholesale prices to consumers and ensure we would not have a change of bills in the middle of winter.”

Warm This Winter spokesperson Fiona Waters added:

“Without additional support, it will be anything but a happy new year for people trapped in Britain’s broken energy system.

“We need to see the UK Government introduce an Emergency Energy Tariff for vulnerable households and a Help To Repay scheme for those in energy debt.

“Failure to avert this cold homes crisis will lead to pressure on the NHS, a mental health catastrophe and additional winter deaths caused by living in cold damp homes.”

It follows Warm This Winter’s latest research which revealed 16% of adults (8.3m people) live in cold damp homes, exposed to the health complications that come from living in fuel poverty. Of those, vulnerable households and customers on prepayment meters are more likely to live in dangerous, cold damp homes.

The NHS warns that people with damp and mould in their homes are more likely to have respiratory problems, respiratory infections, allergies or asthma.

Unaffordable energy prices are here to stay and even in winter 2024/25, energy bills are expected to be 60% higher than winter 2020/21.

“People have had enough of these sky high energy bills and today’s price cap places yet another huge burden on families who are stretched to the limit, we need an end to this vicious cycle. The UK Government needs to take much more action to help people stay warm this winter and every winter through increased support for home insulation and cheaper renewable energy,” added Fiona Waters.

People will still feel the pain of high energy bills this winter as a new Ofgem price cap comes into force from 1 October 2023. 

Decreases in the unit costs of energy are offset by higher standing charges, the wider cost of living crisis harming people’s ability to pay high energy bills and a lack of financial support from the Government compared to last winter.

The latest Cornwall Insight predictions are that energy bills will increase from 1 January 2024 and stay high throughout the rest of next year.

A spokesperson for the End Fuel Poverty Coalition, which is part of the Warm This Winter campaign, commented:

“From 1 October, all households in every part of the country will pay more on energy standing charges, more into the profits of energy firms and many are more in debt to their suppliers.

“Average energy bills are still almost double what they were three years ago and Government help for households, which was available last winter, has been axed. This means this winter will feel worse for many households.

“If Members of Parliament on the House of Commons Energy Security Committee can see problems households will face, why can’t the Government? The MPs’ recent report on tackling the energy bills crisis sets out sensible recommendations to help vulnerable households and Ministers need to implement these ideas immediately.”

Paying MORE on standing charges

• Standing Charges are paid by customers every day they are connected to the grid – and they are a postcode lottery with customers in Merseyside and North Wales paying significantly more than those in London.
• Compared to winter 2020/21, daily standing charges for gas are up 8% and for electricity up 119%. The cost of every unit of energy used is also significantly higher:

• Analysis of Ofgem data by the End Fuel Poverty Coalition, suggests that customers on standard credit terms pay substantially more for their energy than those on direct debit – with gas standing charges 18% higher, electricity standing charges 13% higher and unit costs also c.5% higher:

Paying MORE into profits of energy firms

• Ofgem has changed the rules on energy firms profits. This means suppliers are likely to earn 2.4% profit on every average customer’s bill from 1 October – up from 1.9% currently.
• These new arrangements include a fixed component and a percentage component on top of that, rather than the whole value being a larger percentage of the total bill. Experts from the Warm This Winter campaign calculate that customers will only pay less profit to energy firms than before if their bill is above a staggering £4,000 a year.
• The Warm This Winter Tariff Watch report estimated that energy firms will rake in almost £2bn in profits over the next 12 months. In addition to the record profits already announced in 2023. 

Many people are MORE in debt to their energy firms

• Figures from Ofgem revealed that almost 1.2m customers disconnected from their energy supply in the first three months of 2023, while the average household energy debt for homes not on a payment plan is £1,214 on electricity bills and £965 on gas bills. Figures from the Money Advice Trust suggest that this “bad debt” is just the tip of the iceberg.
• Customers on prepayment meters are especially hard hit by energy debt levels, with data secured under freedom of information requests by 38 Degrees showing that PPM customers are £1bn in debt on their meters, making them more likely to disconnect as their top up amounts are deducted to pay off their debts.
• Citizens Advice data found that in the first 6 months of 2023, 7.8 million people have had to borrow money to cover their energy bills and 1.2 million children live in households which have had to go without heating, hot water and electricity. The charity has issued a warning that if the Government doesn’t step in, these numbers will rise this winter.
• The Money Pensions Advice Service also found that nearly one in five buy now, pay later (BNPL) customers have used this payment method for essentials. Case study evidence from the Fuel Bank Foundation reveals that energy customers are also turning to high-interest payday loans to cover their energy costs.

Price cap history chart (source: End Fuel Poverty Coalition records using Ofgem, BEIS / DESNZ and Cornwall Insight data)

* Figures from 1 Oct 2022 include EPG and EBSS. Figures from 1 Apr 2023 include EPG. 

** Figures from 1 January 2024, the figures use a new “average household” usage calculation. Using the old estimates indicate even more significant increases throughout 2024.

Figures in italics taken from Cornwall Insight and are predictions.

The latest Ofgem price cap announcement has set energy prices for 29m households for October, November and December 2023. 

In the detail of the figures it shows that, when compared to winter 2020/21, the cost of every unit of energy used is around double what it was. Daily standing charges for gas are up 8% and for electricity up 119%.

Compared to last winter, unit costs are down 30% for gas and 15% for electricity, but daily standing charges are up 4% for gas and 15% for electricity, while the Energy Bills Support Scheme has been withdrawn (which was worth about 16% of an average bill).

Ofgem has also confirmed that energy firms can increase the amount of profit they make through the price cap by c.£2 a year for every average customer on the standard variable tariff.

A spokesperson for the End Fuel Poverty Coalition, commented:

“When you look at the details of this price cap, the reality is that every unit of energy a customer uses costs double what it did a few years ago. The daily standing charges customers pay have also increased – doubling in the case of electricity.

“The Energy Bills Support Scheme has also been taken away this winter, while energy firms have been allowed to increase the profits they make per customer and vulnerable households have been left wondering what will happen this winter and beyond.

“Meanwhile the cost of living crisis continues to hit households hard and everyone now has less ability to pay these high energy prices. Energy debt levels continue to surge and reports from several charities and think tanks in recent days have set out just how dangerous this winter will be – especially for the most vulnerable.”

Tessa Khan, Director of Uplift, which is part of the Warm This Winter campaign, commented:

“The government seems to think the energy crisis has gone away, but for millions of households this autumn will be as hard as the last.

“People are still paying double what they were just a few years ago, and for some households their bills will be more than they were last year because of the lack of government support and rising standing charges. Levels of energy debt are also soaring.

“People will rightly ask what this government has done over the past year and a half to fix Britain’s broken energy system and lower bills for good.

“Instead of bowing to the wishes of profiteering oil and gas giants for more drilling, which won’t lower our bills, it needs to help people save money with more support for insulation and get on with ramping up cheaper renewables. That’s the only way we’re going to see permanently lower energy bills.”

Jess Ralston from ECIU commented:

“Unfortunately we’re not out of the woods yet as gas prices are expected to stay at least 2x higher than pre-crisis levels in the longer term, and while lots of Europe has moved away from gas altogether we’re still reliant on it. Last year the IMF said that this reliance is why we were hit harder than other countries.

“Those in the most inefficient homes could pay around £720 more on bills over the next year than those in energy efficient ones. We could have spent the last year insulating houses to shield them from future gas price spikes, and building more British renewables so we need to buy less expensive gas on the open market. Instead there seems to have been a focus on the North Sea, which won’t bring down bills.

“The Government’s flagship insulation scheme has flatlined this year, so getting it back up and running could help people in time for this winter and fulfilling pledges to tighten energy efficiency regulations for private renters and lifting the ban on onshore wind could help in time for next winter. Using less gas is the key to lower bills and energy security.”

National Energy Action (NEA) have warned that 6.3 million households could be trapped in fuel poverty this winter. It is somewhat less than last year, but far ahead of the 4.5 million in October 2021. Chief executive Adam Scorer commented:

“The price cap does not protect those who simply cannot afford the cost of keeping warm. The UK Government can still act – by directly reducing energy bills via targeted energy discounts or a more targeted Energy Price Guarantee for low-income and vulnerable households.

“It knows how to do it. It has millions of pounds unspent from previous schemes. It is aware that failing to act will consign millions to another winter of despair and suffering.”

The End Fuel Poverty Coalition recently wrote [pdf] to the Speaker of the House of Commons and the chair of the Commons Energy Security & Net Zero Committee to highlight the five occasions in 2023 when leading members of the Government, including the Prime Minister, promised to consult on the introduction of a social tariff.

In the recent policy paper, “Delivering a Better Retail Energy Market”, there is no mention of social tariffs or the introduction of discounted tariffs for the most vulnerable.

While there are some references to vulnerability and tariff innovation in the recently published consultation “Towards a more innovative energy retail market”, there is no mention about how the retail market needs to be reformed to provide vulnerable households with access to the energy they need and additional protections they may need in a market-led approach to energy supply.

The End Fuel Poverty Coalition has urged MPs to hold the Government to account and ensure that the introduction of a form of “social tariff” from April 2024 (or alternative consumer protection for vulnerable customers, such as “energy for all,” the National Energy Guarantee or a Energy Costs Support Scheme), will be considered by the Government as a matter of urgency.

The End Fuel Poverty Coalition spokesperson continued:

“Ministers had promised to consult on tariff reform to help the households most in need and who most rely on energy to keep themselves safe. Sadly, they have abandoned plans for a social tariff consultation.

“The Government seems to be running out of enthusiasm to help people get through the energy bills crisis, and it is also now running out of time to act to keep people warm this winter.”

Notes:

Data available: End Fuel Poverty Coalition unit cost increases