In a bid to tame inflation, the Bank of England, the UK’s central bank, is increasing interest rates, as it has hit 10.1%.
The backdrop is an economic environment that follows a decade of stagnant wages, which are currently not even close to keeping up with the rate of inflation.
This inflation has many causes, including disruptions to global supply chains caused by the coronavirus pandemic.
The main reason, however, is skyrocketing energy prices triggered initially by rising demand as economies opened up after the pandemic but exacerbated greatly by Russia’s war on Ukraine and the sanctions regime placed on Russia as a result.
The UK’s energy price cap, introduced in 2019, is used by local media as a proxy for general consumer energy prices. The cap sets the maximum figure for what customers on variable dual electricity and gas rates can be charged yearly and reflects typical usage levels.
In April 2021, the case was set at £1,138 ($1,371). Local media have reported in recent days that it could reach £5,456 ($6,573) in April 2023.
Anadolu Agency interviewed four experts for their views on the energy and cost-of-living crises in the UK.
‘Simply not enough’
Simon Francis is a founder member of the Campaign Collective, a social enterprise that helps charities with their public relations. He currently coordinates the work of the End Fuel Poverty Coalition.
“Well, it’s just simply not enough,” Francis said of the current level of government support, which he said was based on energy prices back in May.
He added that the government’s predictions for how much they would increase by this winter are also now out of date.
“The level of support that the UK government is proposing doesn’t really scratch the surface in terms of what people are going to need this winter.”
Peter Smith, director of policy and advocacy at National Energy Action, a fuel poverty charity, told Anadolu Agency that the UK government’s current support package is outdated as energy price projections have since increased.
Smith said that while most UK households were going to feel the pain, his charity was most concerned about those with low incomes living in the least efficient homes, as they are already struggling to pay their bills.
“A further increase in October is going to put them in an impossible situation,” he said.
Kay Daniel Neufeld, director and head of forecasting and thought leadership at the Centre for Economics and Business Research, an economics consultancy, told Anadolu Agency that the initial £15 billion ($18 billion) package announced in May and that was aimed at the least well off was “reasonably sized” at the time and was “roughly adequate in size and how it was targeted.”
“In total, two thirds of the £15 billion package will go to the bottom half of the income distribution, which is welcomed,” he said.
Still, energy prices have continued to soar, so more needs to be done over the coming months, he noted.
“The poorest are those hardest hit. They spend higher shares of their incomes on essentials such as rent, bills and food. As these go up in price, their budget for any discretionary spending gets squeezed more and more. For some of the poorest, this means taking on debt or borrowing money from friends and family. Others are having to cut down on meals or heating,” Neufeld said.
“Having said that, the higher energy prices make us all poorer. Even households which used to be able to get by may feel that the increase in the cost of living is too much and that they will have to tighten their belt. A recent YouGov poll found that 32% of Brits will need to make small cuts to afford coming energy bills while 30% will need to make large cuts. Therefore, this crisis is by no means confined to lower-income households,” he added.
Much has been made in the British press of the contrast between the UK’s policy choice to give financial support straight to consumers and the approach of many European countries for the state to absorb the rising costs itself.
Neufeld was not keen on the European approach.
“The risk that emerges if you absorb higher costs in its entirety — especially in EU countries such as Germany — is that there is no price signal encouraging energy saving measures. Germany, for example, faces a potential gas shortage unless households, government and businesses can reduce their gas consumption,” he said.
Francis said neither were long-term solutions to fuel poverty.
“What we need to do is invest in the energy efficiency in buildings and also we need to move away from the volatile fossil fuel market and focus much more on renewable energy, which is something that we can generate in the UK very easily and relatively cheaply,” he said.
Britain’s next prime minister
The UK is currently undergoing a Conservative Party leadership race in which former Chancellor of the Exchequer Rishi Sunak and current Foreign Secretary Liz Truss are running to become Britain’s next prime minister.
Francis said that Sunak has made more of an effort to understand the concerns of consumers, adding that he has already pledged additional financial support for people and spoken broadly about energy efficiency and home insulation, though it remains to be seen if the details of his proposals are enough.
“Liz Truss, on the other hand, unfortunately doesn’t seem to have grasped the severity of the problem, and her proposals seem to center around tax breaks, which simply won’t keep people warm this winter, so there’s clearly more work that we feel her team needs to do to really not only understand the scale of the problem but also how support can best be provided to people this winter,” he said.
Neufeld, however, criticized both candidates’ lack of focus on energy at a strategic level.
“Strategic energy policy does not seem to be high on the agenda for either candidate, which is lamentable. Both have pledged they would maintain the government’s goal of reaching net zero (carbon emissions) by 2050, though the big question remains how that will be achieved in practice,” he said.
Francis said there has been a shift in the tone of the national debate over the past few weeks and that he’s cautiously hopeful that more support will be made available, though whether it is enough remains to be seen.
“What we also need to see is a long-term plan to end fuel poverty in the country through more energy efficiency in our buildings and through a switch to cheaper renewables,” he said.
Neufeld said the UK weaned itself off coal using natural gas as a key element of its transition strategy, but with gas prices no longer as cheap as they once were, Britain would have to rethink its energy mix going forward.
He hoped the UK and EU would work together to make themselves independent of Russian gas and pivot more quickly to renewable energy, including nuclear, to become net zero economies.
“I further hope that the next PM will act quickly to increase energy bill payments for those most in need and help to mitigate the impact of higher energy prices on lower-income households. It’s likely that there will be some movement on this, but the question is whether the support will be sufficient,” he said.
“Sunak is yet to reveal the details of his plans for a new support package and has attacked Truss for relying on tax cuts. We agree that more targeted support for the most vulnerable households will be necessary, including transfer payments,” he added.
Smith said National Energy Action were calling for an upgraded support package to match the scale of the crisis that is facing the UK from October.
“The UK government still has time to act, to upgrade the energy bill support package to prevent dangerously cold homes, households falling into deep debt and unsafe coping tactics,” he added.
On future support going forward, he said National Energy Action hoped the government would work with Ofgem, the energy regulator, to “bring in a social tariff for low-income households to provide a safety net for those who might be struggling to afford their bills.”
“Looking to the longer term, there needs to be a concerted effort to improve the energy efficiency of our homes. This will cut energy bills and soften the impact of future wholesale price shocks on households,” he said.
Richard Lane, director of external affairs at StepChange, a UK debt charity, told Anadolu Agency that the steep rise in UK energy bills this year was “hugely worrying,” especially for the financially vulnerable.
“We have been clear for some time that the government, regulators and energy companies can and should do more to help those in difficulty,” he said, citing rising levels of consumer energy debt.
“As well as further targeted support from the government that matches the scale of the new price cap rise, we need to see the uprating of benefits brought forward to September to help those on low incomes cope with rocketing inflation. We would also like to see a commitment to pausing unaffordable government debt deductions, which are already a cause of major hardship,” Lane said.
He added that energy companies have a regulatory responsibility to offer support to their customers and that people should contact their supplier as well as StepChange if they need free and impartial debt advice.