Would you cringe at paying £33 for a pint of beer? How about £28 for a coffee, a tenner for a cheeseburger or £102 for 20 Marlboro lights?
That’s about how much these items would cost if they rose in line with the wholesale price of gas this year.
The boss of Octopus Energy has started a trend of using familiar objects to put skyrocketing energy bills into perspective. After Friday’s energy price ceiling announcementI fear that the “price shock” of an 80% increase in average household bills is just the beginning.
Annual bills of £3,549 for the average user of dual-fuel units from October 1 are almost a third higher than the estimate of £2,800 on which the government’s £15 billion energy support package was based, and are set to rise further.
Quarterly revisions to the price cap mean average bills could reach £5,300 in January and £6,600 in the spring as soaring wholesale costs are passed on to customers more quickly.
To say that current energy aid measures are inadequate is an understatement. Without more help, suppliers warn most customers will be plunged into fuel poverty by Christmas. Citizens Advice estimates that 18 million people – one in three UK households – simply won’t be able to pay.
As consumers panic, the silence from Westminster is deafening.
Boris Johnson – the man who never had to worry about paying his gas bill – said in his final days in office that the British public would have to endure soaring energy prices to resist Russian President Vladimir Putin.
But on the home front, politicians have more to offer than warm words. The personal finances of millions of people await nuclear weapons this winter.
There is so much that can be done Now to handle the crushing financial blows we know are coming, and the Tory leadership contest simply does not excuse the lack of government action to deal with the devastating effects of these price rises.
In the middle of a call freeze the price ceiling and extend existing support packages, here are some of the big issues that MPs and regulators urgently need to address as they work out policy solutions.
Manage payment shock
If you’re one of the 86 per cent of UK households on a price-cap tariff, expect your energy supplier to ask for an increase in your collection before the next Prime Minister takes office.
For the average user, the £3,549 cap will drop from October 1 to energy bills of around £300 a month. Depending on your usage and credit, your supplier may charge much more.
Never mind the cultivation Don’t Pay Campaign — customers who can’t pay are already panicking and canceling collections, says Gemma Hatvani, founder of the Facebook group Energy Support and Advice UK.
Immediate cancellation adds 6 percent to the cost of the bill, disrupts any existing repayment plan, and can quickly lead to bad debts that damage people’s credit scores for years.
While we wait for news of more relief measures, how many more will be cancelled? Without more support, the unprecedented numbers this winter would cause huge energy debts – with suppliers and regulators having to work urgently to manage it.
Terminate prepaid insurance
It is common to switch to indebted customers advance meters. However, the charity Fuel Bank Foundation estimates the average monthly cost to be £480 this December for the 4.5 million UK households who pre-pay for their energy use, as they pay proportionately more in the colder months.
This is an appalling example of a ‘poverty premium’ as well as a higher price cap of £3,608 for prepaid customers. Either way, rising living costs are crushing the budgets of the poorest before The October price increase will take effect.
Charities to support poverty they are already overwhelmed with requests for emergency vouchers from customers who can’t afford top-ups and don’t have electricity, heating or hot water.
“Debt, misery and finally death . . . that’s exactly what we’re seeing 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 emphasizes that it is not just the cold that will kill this winter, but the huge impact of debt on people’s mental health.
“People who come to us for help are scared,” he says. “The cost of living crisis is costing lives. An item on the agenda at a recent meeting was “suicides in the past week.” We urgently need a strong and effective intervention.”
CAP is calling for a moratorium on deducting government debt at source from benefit claims – an issue that affects almost half of those who turn to the charity for help.
Up to 25 per cent of benefits can be reclaimed to pay back historic tax credit debts or universal credit advances, and no means checks are required. This has to stop.
Start the social tariff
The preferential social tariff, which is supposed to protect the poorest households from bankruptcy due to huge energy bills, is quickly gaining popularity (even suppliers support it). These already exist for low-income broadband customers, but time is running out to launch them before energy prices skyrocket.
Social tariffs would reduce injustice fixed feeswhich are set at a fixed daily rate regardless of how little energy you use, and have risen with the costs of energy company failures.
By October, pre-paid customers who haven’t used a cent of gas since April will have to load almost £70 into their meters to switch their heating back on to cover the accumulated standing charges.
The lack of additional help, combined with predictions of frighteningly high future price caps, is forcing more consumers to consider overpaying over the chances of a fix — even though the deals are shockingly expensive.
“I have a three-bedroom country bungalow, not a hemp farm!” wrote one angry customer Twitter at Scottish Power this week after being quoted at just under £17,000 a year on a fixed tariff.
Right now, it’s likely that you’ll only be able to get a fix from your current supplier. If energy prices fall in the future – or another boost is imminent – expect to pay a £300 exit penalty.
Are you in debt to your supplier? You can apply for variable billing, where you only pay for the energy you use that month, although these tariffs are not openly advertised. Hatvani Facebook group is a goldmine of energy-saving ideas (fryer, installing thermostatic radiator valves and lining curtains with old fleece) that reduce bills.
Initiatives to encourage off-peak use through bill rebates are welcome, but with the crisis expected to last for years, green energy subsidies for home heating and renewable generation are also needed.
Finally, ministers cannot ignore cost of doing business with the expiration of energy trading contracts. A pub that sells you a pint; a cafe where you buy coffee; even corner shops selling ciggies. Small businesses can’t quadruple their prices, but in many cases their utility bills already do.
October’s cap announcement is the latest red-flashing reminder of urgent policy intervention.
Are you struggling to manage your finances as the cost of living rises? Our consumer editor Claer Barrett and financial educator Tiffany ‘The Budgetnista’ Aliche discuss tips on the best ways to save and budget as prices rise around the world in our latest IG Live. Bach here.