Poorest 10% of families will see energy costs increase by £724, a 7.5 times larger rise than the richest 10% of families

New analysis of the impact of Ofgem’s new energy price cap announcement today by the New Economics Foundation (NEF) shows that the poorest 10% of families will see energy costs increase by 6% (£724) of their disposable income, a 7.5 times larger rise than the 0.75% of disposable income rise for richest 10% of families. The analysis further shows that single parents, pensioners, and families with one or more disabled people are likely to be hardest hit by the rise in energy bills.

The analysis shows that higher bills for single parents will consume 2.5% (£647) of disposable income in April 2022, a 56% larger rise compared to the average family (1.6% of disposable income). Pensioner households will see their bills rise by 2.3% (£634) of disposable income, and families with a disabled member by 2% (£682), which is 41% and 23% larger than the average, respectively.

UK households are set to face a painful rise in their energy bills as international gas prices soar now confirmed at £694 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.

Today’s announcement from the energy regulator Ofgem confirms the revised the price cap (the maximum unit tariff that suppliers can charge customers) at £1971, a jump of 54% since the last revision just four months ago in October 2021. The revised price cap of £1971 reflects the annual cost for an average household with a typical energy consumption (12,000 units of gas and 2,900 units of electricity).

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.

Chaitanya Kumar, Head of Environment and Green Transition at the New Economics Foundation, said:

“Today’s announcement from Ofgem reveals what many have feared for several weeks – the energy price rise means that millions of low- and middle-income households, pensioners and families with kids will be impacted far worse than others. The Chancellors measures fall short of the scale of the challenge. With a £200 rebate on everybody’s bills clawed back in 5 years and a poorly targeted council tax rebate of £150, millions could be left out in the cold from higher energy bills.

“Ofgem also notes that over 80% of the jump in the price cap is down to wholesale price increases, a fact that flies in the face of myths being peddled by a few backbench conservatives who are blaming renewable energy and the government’s net zero policy as the cause for the ongoing crisis.”

Contact
Sofie Jenkinson, sofie.jenkinson@neweconomics.org, 07981023031

Notes to editors

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

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 Ofgem announcement 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.