Don’t Let Energy Price Wars Destroy Our Personal Finances

Would you wince at the thought of paying £33 for a pint of beer? How about £28 for a coffee, a ten for a cheeseburger or £102 for 20 Marlboro Lights?

That’s roughly what these items would cost if they had risen in line with the wholesale price of gasoline this year.

The Octopus Energy boss started the trend of using familiar objects to put skyrocketing energy bills into perspective. Following Friday’s energy price cap announcement, I fear the “price shock” of an 80% increase in average household bills is just the beginning.

Annual bills of £3,549 for the average dual-fuel user from October 1 are almost a third higher than the £2,800 estimate on which the government’s £15billion energy support package was based , and are expected to increase further.

Quarterly price cap revisions mean average bills could reach £5,300 in January and £6,600 in the spring, with spikes in wholesale prices being passed on to customers more quickly.

To say that the current energy aid measures are insufficient is an understatement. Without additional help, suppliers warn that the majority of customers will be plunged into fuel poverty by Christmas. Citizens Advice estimates that 18million people – one in three UK households – simply won’t be able to pay.

Yet as consumers panic, the silence from Westminster is deafening.

In his final days in office, Boris Johnson – a man who never had to worry about paying a gas bill – said the British public would have to endure soaring energy prices to stand up to Russian President Vladimir Cheese fries.

But on the home front, politicians must offer more than warm words. The personal finances of millions of people are in danger of being wiped out this winter.

There’s so much to do now to deal with the crushing financial blows we are experiencing, and the Conservative leadership race simply does not excuse the government’s lack of action to deal with the devastating effects of these price hikes.

Amid calls to freeze the price cap and expand existing support schemes, here are some big issues MPs and regulators need to address urgently as they craft policy solutions.

Managing payment shock

If you are among the 86% of UK households whose tariffs are governed by the price cap, expect your energy supplier to ask to increase your direct debit before the next Prime Minister takes office.

For the average user, the £3,549 cap comes down to energy bills of around £300 a month from October 1. Depending on your usage and credit, your provider may charge significantly more.

Never mind the growing Don’t Pay campaign – customers who can’t pay are already panicking and canceling direct debits, says Gemma Hatvani, founder of Facebook group Energy Support and Advice UK.

Cancellation immediately increases bill costs by 6%, tears up any existing repayment plan, and could quickly result in bad debt, damaging people’s credit scores for years.

As we await news of new aid measures, how many more will cancel? Without more support, unprecedented numbers risk piling up huge energy debt this winter – suppliers and regulators need to work urgently to manage this.

Ending the prepayment bonus

Indebted customers are generally switched to prepayment meters. However, the charity Fuel Bank Foundation estimates average monthly costs at £480 in December for 4.5 million UK households billed in advance for energy consumption, as they pay proportionally more in the colder months .

This is an ugly example of the ‘poverty premium’, as is the higher price cap of £3,608 for prepaid customers. In any case, the rise in the cost of living means that the budgets of the poorest are crushed before October price increases take effect.

Energy poverty charities are already inundated with requests for emergency vouchers from customers who cannot afford to recharge and who have no electricity, heat or hot water.

“Debt, misery and ultimately death. . . that’s absolutely what we’re planning this winter,” says Gareth McNab, director of external affairs at Christians Against Poverty, one of the UK’s largest providers of free debt advice.

He points out that it’s not just the cold that will kill this winter, but the huge impact of debt on people’s mental health.

“People who turn to us for help are terrified,” he says. “The cost of living crisis is costing lives. One item on the agenda at a recent meeting was “suicides over the past week”. We urgently need a powerful and impactful intervention.

The CAP is calling for a moratorium on government debts deducted at source from benefit claims – an issue that affects nearly half of those who have sought help from the charity.

Up to 25% of benefits can be clawed back to pay off historical tax credit debt or universal credit advances, and no accessibility check is required. This must stop.

Launch a social tariff

A reduced social tariff to protect poorer households from bankruptcy due to huge energy bills is rapidly gaining credibility (even suppliers support it). These already exist for low-income broadband customers, but time is running out to launch one before energy prices soar.

Social tariffs would limit the inequity of permanent charges, which are set at a fixed daily rate regardless of low energy consumption and which have exploded with the cost of power company failures.

By October, prepaid customers who haven’t used a penny of gas since April will have to charge almost £70 on the meters to get the heating back on just to cover the accumulation of permanent charges.

In a fix

The lack of additional help, combined with scary future price cap predictions, is pushing more consumers to consider paying more for a solution, despite the deals being incredibly expensive.

“I have a three-bedroom rural bungalow, not a cannabis farm!” an angry customer wrote on Twitter at Scottish Power this week after being listed for just under £17,000 a year on a fixed rate.

At this time, chances are you can only get a fix from your existing vendor. If energy prices fall going forward – or more support is forthcoming – expect to pay a £300 exit penalty.

Do you have any debts to your supplier? You can apply for a variable direct debit where you only pay for energy used that month, although these rates are not publicly advertised. Hatvani’s Facebook group is a treasure trove of energy-saving ideas (air fryers, installing thermostatic radiator valves, and lining curtains with old fleeces) to keep bills down.

Initiatives to encourage off-peak use with bill discounts are welcome, but with the crisis expected to last for years, green energy subsidies for home insulation and renewable energy generation are also needed.

Finally, ministers cannot ignore the cost of doing business when commercial energy contracts expire. The pub sells you a pint; the cafe where you buy coffee; even convenience stores selling ciggies. Small businesses can’t quadruple their prices, but in many cases their energy bills have already gone up.

The announcement of the October cap is a final reminder, flashing red, for urgent policy intervention.

Claer Barrett is the FT’s consumer editor: claer.barrett@ft.com; Twitter @Claerb; instagram @Claerb

Are you having trouble managing your finances as the cost of living increases? Our editor Claer Barrett and finance educator Tiffany ‘The Budgetnista’ Aliche discussed advice on the best ways to save and budget as prices around the world rise in our latest IG Live. look at this here.

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