Energy crisis: A third have cut back on heating to dodge bill rises

Cost of living crunch already hitting majority of households – and ONS suggests almost a third are rationing energy to dodge rising bills

  • 66% of Brits already feeling the squeeze from the cost of living crisis
  • Higher energy bills and food prices are main contributors to rising living costs
  • 32% are cutting back on gas and electricity use to make ends meet


Two thirds of Britons are already feeling the squeeze from the cost of living crisis, with nearly a third cutting back on their gas and electricity use in January to dodge  spiraling costs, new official data shows. 

Soaring energy bills were increasingly responsible for financial pressure and ‘disproportionately’ impacted those on lower incomes, according to the latest study measuring the impact of rising costs on households by the Office for National Statistics. 

Around four in five people feeling rising pressure on their budgets have blamed an increase in gas and electricity prices – and that is before the price cap balloons in April.

Cutting back on heating: 32% of Brits have reduced their use of gas and electric in January

Rising food costs have also squeezed people’s finances, with nearly 9 in ten people saying their supermarket bill has gone up, according to a poll conducted between the 6 and 16 of January.

In light of the big jump in costs, almost a third have cut back on their use of gas or electricity to make ends meet.  

Meanwhile, 53 per cent said they were spending less on non-essentials, while around a quarter were using their savings.  

This is echoed by figures released by the Bank of England today, showing that households were already borrowing more and putting less money into savings in December.

Credit card borrowing increased by 2 per cent per cent last year, while households deposited £3.2billion into savings accounts, lower than the amount of money typically deposited pre-pandemic, which averaged £5.5billion per month in the year to February 2020.

Higher energy bills and food prices are the main contributors to rising living costs

Higher energy bills and food prices are the main contributors to rising living costs

As economies around the world bounce back from the pandemic, energy prices have skyrocketed. 

The wholesale price of gas in January this year was almost four times higher than in early 2021, the ONS said.  

Ofgem’s energy price cap, which limits the amount suppliers can charge, is currently set at £1,277 a year for the average domestic dual fuel tariff. 

However, experts have said it could go up by as much as £600 in April, with households set to find out the extent of the increase next week on Monday 7 February.     

Currently, 12-month inflation rates for gas and electricity are at their highest level since early 2009, with gas at 28 per cent and electricity at nearly 19 per cent, according to the ONS. 

These rates are closely tied to changes in the energy price cap, moving in lockstep with the rates set by Ofgem. 

The wholesale price of gas in January was almost four times higher than in early 2021

The wholesale price of gas in January was almost four times higher than in early 2021

The ONS said energy price rises are likely to hit lower income households disproportionately, as they spend a higher proportion of their income on utility bills and are more likely to be in fuel poverty.  

In the financial year ending in 2020, the poorest 10 per cent of households spent 54 per cent of of their average weekly expenditure on essentials such as energy bills, food and transport.

However, those in the richest 10 per cent, spent a lower 42 per cent of their average weekly spend on the same essentials.

‘As a result, an increase in energy prices disproportionately impacts low-income households,’ the ONS said. 

Last week it released some figures showing that inflation for high and low income households was almost identical – although it admitted that that soaring food and energy bills mean low-income households stand less chance of avoiding the hit from rising prices. 

Spending on gas and electricity as a proportion of disposable income is highest for the poorest households

Spending on gas and electricity as a proportion of disposable income is highest for the poorest households

Energy crisis: What can be done to lower bills?

The tricky question is what do we do? Because there is no magic bullet here, writes This is Money editor Simon Lambert.

There has been plenty of talk of a VAT cut, which seems like an imminently sensible move, but the tax is only 5 per cent on energy bills and Cornwall Insight reckons this would shave just £90 on average off dual fuel bills.

Critics of a VAT cut say this would also help wealthier households. But I would argue that’s a red herring: there is a lot to be said for the odd universal benefit and a nation that hands out Winter Fuel payments to pensioners both rich and poor shouldn’t worry too much about a temporary VAT cut for all.

Other options, according to Cornwall Insight, include deferring recouping costs for failed suppliers, which would also save about £90, moving green levies to general taxation (£160), and deferring payment of energy network costs (£330). This New Scientist article digs into those in some more depth.

Meanwhile, either direct financial support to customers, or loans to suppliers to mitigate energy price rises could both be worth about £500 off bills.

These two are the big guns that could be wheeled out, but would cost the most money. 

Read the full story: What can Britain do to ease the pain of energy bills rocketing 50% in April? From a VAT cut, to paying suppliers SIMON LAMBERT looks at the options

 

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