Single parents, pensioners and families with disabled members face up to 56% faster rise in energy bills than the average household

Single parents, pensioners, and families with one of more disabled people are likely to be hardest hit by the rise in energy bills, according to analysis from the New Economics Foundation (NEF), published today. The analysis shows that higher bills for single parents will consume 2.2% of disposable income in April 2022, a 56% faster rise compared to the average family (1.4% of disposable income). Pensioner households will see their bills rise by 2% of disposable income, and families with a disabled member by 1.7%, which is 41% and 23% faster than the average, respectively.

UK households are set to face a painful rise in their energy bills as international gas prices soar; estimated at £600-£800 on average from April this year – or a total rise in annual UK bills of £14bn. Nearly 3 million households were already behind on their energy bill payments even before the price rise last October.

But this jump in energy prices will not affect all households equally, and will be highly regressive. Households with children or disabled adults typically have greater gas and electricity usage, and lower-income households are also more likely to be living in draughty, energy inefficient housing while also having comparatively little disposable income to absorb an increase in price. NEF modelling found that the poorest 10% of families would see energy costs increase by 5% of their disposable income, a 7.5 times larger rise than the 0.7% of disposable income rise for richest 10% of families.

NEF modelling also looked at different policy options to protect family incomes. In order to compare on a like-for-like basis, this initial analysis compared three options all costing around £2.5b: cutting VAT on energy bills for all households, worth around £90 per family; a ​‘medium targeted’ boost to all means tested benefits of £270; and an ​‘extra targeted’ £440 boost to the poorest 20% of families.

After taking into account all policy changes expected this April – such as higher national insurance contributions and minimum wage – the analysis found that none of these options would be enough to prevent a fall in incomes for most families in the poorest half of the income distribution. For example, even after a VAT exemption, the 10% poorest families would still see disposable income fall by nearly 2% this April. In order to illustrate potentially more effective options, NEF modelled two further scenarios, including the full Labour Party package and an £800 boost, or £15 per week, to all means-tested benefits, respectively. The analysis showed that both options were progressive and would likely prevent incomes falling on average for the poorest third of families in April. But a policy to to boost means-tested benefits by £800 this year is the most effective and readily implementable measure to protect the incomes of low- and middle-income households.

While protecting family incomes this spring is now vital, the analysis argues that short-term fixes are no substitute for addressing the long-term problems of a lack of UK energy security and an inadequate income safety net. To protect families in the future, the UK needs more domestic renewable energy production, better energy efficiency, reform of both retail and wholesale energy markets and a proper income safety net. In particular, NEF recommends introducing a new Living Income to replace universal credit and rolling out a Great Homes Upgrade that retrofits millions of homes and slashes our dependence on natural gas.

Dominic Caddick, assistant researcher at the New Economics Foundation, said:

“Everyone deserves to live in a warm, comfortable home. But soaring gas prices are hitting households unequally. Single parents, pensioners and disabled people will be the hardest hit, making them the most likely to be pushed into fuel poverty by the government’s lack of support.

The government needs to respond quickly by boosting benefits in the short term. Then they should plan for longer term measures like upgrading the nation’s homes to make them more energy efficient, and reforming our social security system so families are able to weather economic shocks like these in the years to come.

Notes

The full analysis will be available at https://​newe​co​nom​ics​.org/​2​0​2​2​/​0​1​/​t​h​e​-​u​n​e​q​u​a​l​-​i​m​p​a​c​t​-​o​f​-​t​h​e​-​e​n​e​r​g​y​-​b​i​l​l​-​c​risis at 00.01 Monday 24 January

The forecasts for average energy bill increases are based on our analysis the latest ONS data on energy expenditure by income decile and family type taken from their analysis of the Living Costs and Food Survey and Effects of Taxes and Benefits datasets. These figures have been uprated according to Cornwall Insights estimates of average energy bill increases and our estimates for income increases using the IPPR tax and benefit model. Family types are not mutually exclusive: Families ​‘with children’ include single and coupled adults with one or more children; families ​‘without children’ include single and coupled adults with no children; ​‘pensioners’ include single and coupled adults with at least one adult claiming a pension; ​‘single parents’ include single adults with 1 or more children; ​‘unemployed’ includes families with at least one unemployed person; and ​‘disabled’ includes families with at least one disabled person.

The distributional results for different policy options were carried out using the IPPR tax and benefit model, forecasts for average energy bill increases used from before. Family types are mutually exclusive of one another. Families ​‘with children’ include working age single and coupled adults with one or more children; families ​‘without children’ include working age single and coupled adults with no children; pensioners include single and coupled adults with at least one person claiming a pension. Estimates for disposable household by family type used for this analysis are based on data from the Family Resources Survey and are therefore not directly comparable to those implied in Figure 2, which are based on ONS analysis of the Living Costs and Food Survey and Effect of Taxes and Benefits datasets

The New Economics Foundation is a charitable think tank who are wholly independent of political parties and committed to being transparent about how it is funded.

Figure 2: Energy bills of those on lowest incomes could rise 7.5 times faster than those on highest income

Figure 3: £2.5bn is not going to be enough to provide adequate support to all that need it