Energy bills: what to expect this winter

Boris Johnson and Tory leadership candidates should tackle the cost-of-living crisis with an emergency budget or risk condemning millions “to a winter of dire poverty”, Gordon Brown has warned.

Writing in The Observer yesterday, the former prime minister and chancellor said that “a financial timebomb” was set to “explode” in October as fuel prices are set to rise for the second time in just six months.

He called on outgoing prime minister Johnson, as well as leadership hopefuls Rishi Sunak and Liz Truss, to agree on an emergency budget this week and said Parliament should be recalled if they failed to do so.

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The two candidates have “resorted to claiming the moral high ground” over debt and taxes, but “there is nothing moral about indifferent leaders condemning millions of vulnerable and blameless children and pensioners to a winter of dire poverty”, he said.

How high will energy bills go?

Brown’s comments come on the heels of a dire forecast from the Bank of England last week that inflation could soar as high as 13% in October – far higher than the 2% inflation the central bank is mandated to maintain.

It also comes amid predictions that “typical household energy bills will hit more than £3,600 a year this winter”, said the BBC, rising from an average of £1,400 a year in October 2021. It is a figure “about £550 higher than the regulator predicted in May”, when the government last announced a support package to help households contend with bill rises, said Politico’s London Playbook,

How could households be impacted?

In what could be a warning sign of a worsening crisis to come, The Guardian reported that more than half of Britons are already “cutting back on their gas and electricity usage at home due to the worsening cost-of-living crisis”, as rising costs hit vulnerable groups such as pensioners and the disabled the hardest.

An estimated 24 million people in Britain used less gas and electricity between 30 March and 19 June, according to Office for National Statistics (ONS).

Charities have also warned that “the magnitude of bill increases” mean many lower-income households will have to choose “between eating and heating their homes this winter”, said The Guardian.

And the raft of support packages offered by the government is unlikely to be enough to bridge the gap left by rising costs. A report commissioned by Brown and carried out by Professor Donald Hirsch at Loughborough University, found that the support offered to low-income households will not offset the losses they face amid the cost-of-living crisis, with some families up to £1,600 worse off a year.

The report found that the additional £1,200 offered to the poorest in society cannot compensate for the “three blows” to household income from October 2021 to October 2022, namely the loss of the £20-a-week benefits uplift, an annual uprating out of line with inflation forecasts, and a jump in the energy cap. This means that the worst-off households cannot bridge the gap, according to the report’s analysis.

What can be done?

The government has pointed to the additional support it is offering to households throughout the year, worth some £37bn, but has reiterated that Johnson has “made clear” that any “major fiscal decisions should be left for the next PM”, said London Playbook

In an interview with the Financial Times, Conservative leadership contest frontrunner Truss said: “Of course I will look at what more can be done. But the way I would do things is in a Conservative way of lowering the tax burden, not giving out handouts.”

Leadership rival Sunak hit back at the comments, saying it was “simply wrong to rule out further direct support” for struggling households this winter, but Truss backer Penny Mordaunt claimed he had “misinterpreted” her comments.

A range of suggestions to tackle the cost-of-living crisis has been discussed by experts in recent weeks, said The Guardian's economic editor Phillip Inman. Options could include lowering the energy price cap, implementing a bigger windfall tax than the one introduced by Sunak as chancellor, introducing more generous benefits, and capping wages in the City in order to stave off a wage-price spiral.

Amid the growing energy crisis, support for Don't Pay UK, a campaign calling for a million households to cancel their energy bills amid surging costs, has gained rapid support. But charities and legal experts have warned the non-payment of fuel bills could have “disastrous” financial and legal consequences, reported The Big Issue.