Europe

THIS is how much of your income you’ll have to sacrifice to keep the lights on this winter

Martin Lewis warns 'people will die' as energy prices go up

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Energy is set to become a luxury many British households will not be able to afford, according to a new study by anti-poverty charity the Joseph Rowntree Foundation. Over the next two years, the lowest-income households are expected to pay out 46 percent of their income on energy bills alone, a figure falling to 19 percent for middle-income families. This comes as Ofgem this week announced an 80 percent hike in the energy price cap in October, with worse expected to come next year, leading many to call the Government’s support proposals inadequate.

At the moment, the bill for a typical household under the energy price cap is £1,971 a year.

On Friday, state regulator Ofgem announced this would rise to £3,549 in October.

This represents an 80 percent increase on the current rate, and is almost triple the level at the same time last year.

However, analysts expect even sharper hikes next year, as Ofgem itself said “the market for gas in Winter means that prices could get significantly worse through 2023.”

Energy consultancy Cornwall Insight is now forecasting a price cap of £5,387 in January next year, before surging to £6,616 in April.

In light of this, the Joseph Rowntree Foundation has warned the weight of energy bills will become impossible for many on lower incomes to bear.

According to their research, over the course of 2023 and 2024, the poorest fifth of families, predicted to earn an average of £11,600 after taxes and paying for housing, will spend almost half, 46 percent, of their income on gas and electricity bills.

For middle-income families, with predicted average incomes of £31,400, 19 percent of their income after housing costs will go towards energy bills.

READ MORE: UK energy prices far higher than Europe’s, but by how much?

Peter Matejic, Chief Analyst at the Joseph Rowntree Foundation, said: “With the price cap very likely to increase significantly and forecast to remain high well throughout next year, our analysis shows it is a sheer fantasy to think struggling families can pay these stratospheric energy bills without further Government intervention on a significant scale.

“It is impossible to think a care worker or a shop assistant will have to scramble to find hundreds more pounds to pay for their heating or that the entirety of someone’s income for a whole year will be less than their energy bill.

Many of the most vulnerable households will be put into impossible situations.

Energy bills for low-income single parents will take up almost two-thirds, 61 percent of their income after housing costs.

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For low-income single adults without children, gas and electricity bills could exceed the entirety of their income after housing costs, reaching up to 116 percent.

Such a scenario would force them to cut down on energy use and still leave them destitute.

For pensioners in a similar financial situation, energy bills would take up almost 40 percent of their disposable income.

Middle-income single adults without children will have to spend almost a quarter, 24 percent, of their income after housing on gas and electricity.

The Government has announced that every household in the UK is set to receive a £400 discount on their energy bills in October.

Low-income households who receive benefits or tax credits will get an additional payment of £650, but these one-off measures do little to support families facing unpayable bills over the next two years.

New research by think tank Resolution Foundation analysing Labour and Conservative proposals has suggested that they “fall well short” of what is required.

They found Sir Keir Starmer’s £29billion plan for a freeze on energy bills, while providing significant relief to all income brackets, would see the richest households receive £350 more than the poorest over the winter.

Former chancellor Rishi Sunak wants to scrap VAT on energy bills and go forward with the means-test lump sum payment of £650.

While more effectively targeted towards helping the poor, Mr Sunak’s plan would provide low-income households with just £429, compared to £1,029 under the Labour plan.

The Tory leadership frontrunner Liz Truss’s plans to abolish the green levy and undo the latest National Insurance hike would save low-income families £92 over the winter, while saving wealthiest households over ten times more.

Consumer champion Martin Lewis of MoneySavingExpert said: “We must hope that when we have somebody in place they will come up with a robust, firm, strong policy that we can all get behind that feeds people and heats people so that we don’t have people dying because of these price caps this winter. 

“That’s what my fingers are crossed tightly for.”

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