Millions face food or fuel choice as energy bills set to soar

There is nothing new about the fuel poverty issue. But this year, with retail prices and energy prices surging, and pop up energy suppliers failing, keeping people warm should be soaring up in the political agenda. But fuel poverty remains in the margins of Westminster thinking. Perhaps that will change today with a report from the Resolution Foundation warning that “2022 is set to be the ‘year of the squeeze'”.

The failure of the UK’s privatised and badly regulated energy market to anticipate and react to supply shocks including the surge in wholesale gas prices is shocking. The problem has been made worse by our country’s abysmal failure to reduce energy use by insulating homes. Vulnerable people shiver under blankets while the precious and expensive energy they pay for heating seeps out through the walls, doors and windows and vents through the roof.

The Liberal Democrats are calling for the Warm Homes Discount to be doubled and expanded to support vulnerable households with their energy bills throughout the winter months. Ed Davey said:

“The Conservatives have totally failed to tackle the problem. They’ve scrapped insulation programmes that would have reduced people’s bills, cut support for the most vulnerable whilst increasing the UK’s dependence on imported gas, making our country more vulnerable too.”

In England, households are classified as being in fuel poverty if they have fuel costs above the national median level and, if they could afford to spend that amount, they would be left with a residual income below the official poverty line. In Scotland and Wales, a household is in fuel poverty if more than 10% of their income after housing costs is spent on heating.

In July, the House of Commons Library reported:

“Around 13% of households in England were classed as fuel poor, 25% in Scotland, 12% in Wales, and 18% in Northern Ireland. In all nations, fuel poverty rates have either been relatively stable, or falling in recent years.”

Heating costs must be paid for alongside other everyday essentials. Those essentials are getting pricey.

Food and catering prices rose by 3.6% in the year to November. There are gloomy predictions of higher inflation. The cost of petrol and oil, including fuel oil, has shot up by 29.4% over the last year. Electricity costs reached a five year high having risen by 18.8%. It is the same story with gas, up 28.8%. The temporary uplift in Universal Credit has ended. Food bank use has been soaring.

There are dire portents from trade body Energy UK that domestic energy prices are likely to go up 45% to 50% in the spring, with money guru Martin Lewis predicting the energy price cap will rise to £1,660 a year on typical use in April 2022. Our choice of energy suppliers has been reduced after 26 boutique suppliers collapsed. That was not unexpected but instead of the pop up suppliers merging and forming more sustainable competitors to the big six, their collapse has consolidated the control, some would say stranglehold, of the big six over energy supply. The six, also called legacy suppliers, are reported to be seeking terms with Ofgem on dealing with extra costs of £1.8 billion of taking on new customers while adding £100 to the average energy bill.

Although Business Secretary Kwasi Kwarteng has been holding meetings with the energy giants and the regulator, he has been looking out of his depth. The Treasury has said no to any VAT relief for those struggling to keep warm and healthy.

Soaring energy prices are not just a hit to the wallet, they are building up to a public health emergency.

Warmth, along with food, is essential to good health and wellbeing. In England alone the health service is estimated to save £0.42 for every £1 spent on retrofitting fuel poor homes reducing costs to NHS England of around £1.4 billion annually.

It has been long argued that higher energy bills will reduce energy use and with that, reduce carbon emissions. But that is a regressive argument that hits the poorest especially in rural areas with limited access to cheaper energy supplies. The best way to reduce carbon emissions is to reduce energy use through better insulation and to ensure that all new homes have top rated energy performance, including heat pumps and solar panels.

Liberal Democrat Leader Ed Davey MP said over the weekend:

Households in the UK will pay a whopping £100 million more than they did last year for their energy – and that’s only during the seven days between Christmas and New Year.

The Christmas period is already set to be tough but this is the worst possible gift from the Government. Once again ministers are leaving hardworking families out in the cold.  For many the choice between eating and heating will become a stark one this winter – in sharp contrast to the Number 10 parties and Boris Johnson’s posh wallpaper.

The spike in gas prices is seeing energy bills rise to unprecedented levels. Next year energy bills are projected to rise by at least another £400, possibly an inflation-busting £500 a year. Meanwhile, we’ve seen suppliers collapse, and a reduction in competitive prices…

Liberal Democrats are calling for a new long-term home insulation programme to cut bills permanently, end fuel poverty and reduce emissions. As this is an emergency, we also need action now so the government must double and extend the Warm Home Discount to help the most vulnerable households with their heating bills.

* Andy Boddington is a Lib Dem councillor in Shropshire. He blogs at andybodders.co.uk. He is Friday editor of Lib Dem Voice.

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33 Comments

  • People’s energy is needed – while the technology is being created – that is Nuclear and Shale.

  • Nonconformistradical 29th Dec '21 - 8:20am

    ““The Conservatives have totally failed to tackle the problem. They’ve scrapped insulation programmes that would have reduced people’s bills”

    Isn’t this a key issue? Addressing the need to use less energy in the first place?

  • John Marriott 29th Dec '21 - 9:39am

    Our gas and electricity from the same provider is going up nearly £100 per month this January. We certainly won’t be shopping around for ‘a better deal’, given how many of the ‘fly by night’ merchants have gone bust. Nonconformist is right. What he could have queried was whether privatising the energy supply business was a good idea inntge first place.

    As for shale gas, it might be a good idea in the USA with its still large under populated areas; but not on a small island like ours, and especially in a county like Lincolnshire, which gets much of its water from underground aquifers, which could be contaminated by the drilling. In any case, shale gas is no cleaner than natural gas. Let’s hear it for the next earthquake!

  • Nonconformistradical 29th Dec '21 - 10:17am

    @John Marriott

    “Nonconformist is right. What he could have queried was whether privatising the energy supply business was a good idea in the first place.”

    Why are you making assumptions about my gender?

    Agree about need to query the merits or otherwise of privatisation of energy supplies but without effective independent regulation either public or private sector can fail badly.

  • Totally agree that the rises in energy prices are a serious problem for many people that needs tackling. Trouble is, there aren’t any easy short-term solutions. In the long term we clearly need to diversify our energy sources, but that will take decades to achieve.

    One quibble: Andy says, “The failure of the UK’s privatised and badly regulated energy market to anticipate and react to supply shocks including the surge in wholesale gas prices is shocking.“. I think that’s misleading: My understanding is that the reason smaller suppliers have gone bust is that wholesale prices have risen sharply, but they are not permitted to raise their retail prices to match. That’s not so much a failure of the market – it’s a failure caused by over-regulation of the market. Sometimes people are too quick to scapegoat markets and private companies for things that are beyond their control, and this looks like an example of that.

  • James Fowler 29th Dec '21 - 10:51am

    Yes, I think that if the anticipated price rises come to fruition and are sustained this will be the rock on which the Johnson government founders. Voters put him power to get Brexit done and to let the good times roll. Finding themselves noticeably poorer was not part of the plan at all. Look out for a pre-election mini boom engineered for 2024 though.

  • Nonconformistradical 29th Dec '21 - 11:11am

    @Simon R
    “My understanding is that the reason smaller suppliers have gone bust is that wholesale prices have risen sharply, but they are not permitted to raise their retail prices to match.”

    My understanding is that the smaller energy suppliers who have gone bust didn’t (or couldn’t afford to) buy advance supplies and hence were stuck with the huge price increases.

    In which case that would be inadequate regulation – i.e. should these companies have been able to enter the energy market in the first place if they couldn’t demonstrate having such advance supplies as insurance against rocketing prices?

  • George Thomas 29th Dec '21 - 11:15am

    My understanding of climate change is that we’re heading towards much wetter and colder winters and much hotter and drier summers, while most of us live in old houses built before this was known about or cheap houses where profit was put before living standards. What people are spending now on heating in the winter will be what they’re increasingly spending on cooling in the summer.

  • Can someone explain to me how this serious situation with energy has happened, for all the good intentions of seeking cleaner energy the less well off will again be the part of society that will suffer the most, it seems to me that the serious implications of this problem have been ignored by people who have, or should have had, prior knowledge of this impending crisis??? The world is in a mess at the moment and we have a very poor government.

  • Peter Martin 29th Dec '21 - 11:44am

    SimonR is probably right in saying there are no easy solutions but at least some in the mainstream are offering some simple minded non-solutions.

    The rise in energy prices is one of the main drivers in the recent increase in the inflation figures. A non-solution to this problem is therefore to raise interest rates. This makes us less able to afford the higher prices and doesn’t provide any extra gas in our pipelines.

    Another non solution is to ignore the effect of higher fuel prices on aggregate demand and refuse to cushion the price rise by some temporary subsidy. If the recipients of the higher prices were content to spend the proceeds in the UK and other economies there would be no need for this, but if they aren’t the reduction in demand will almost certainly create a new recession.

    The situation parallels the sharp rise in oil prices by OPEC in the 70s. Then the response of the West was to allow inflation to rise which meant that the currency which was accumulated by the oil producers was worth less than they had expected it to be. At the same time the higher price of oil created the need to develop cars and planes with better fuel efficiency. New sources of energy had to be developed.

    The same thing will happen again if prices remain high but it will take some time.

  • Neil James Sandison 29th Dec '21 - 12:01pm

    Most of these fuel price rises relate to fossil fuels dominated by a few large energy suppliers ,whilst supporting insulation projects the cost of the fuel will still be high ,We need in the interim to keep the price cap on but also invest and subsides new forms of renewables which have largely been overlooked like hydrogen wave and tidal all that cardboard generated by on-;line shopping could be going into bio-mass energy. all that water flooding the north could be part of a water network that not only meet shortages in the south but produce energy as it travels through our rivers and canals . sewage can be converted through large anaerobic digesters to produce biogas for energy production change the fuel and dont be prisoners of fossil fuel providers .

  • Or we could??? continue to use the source of energy that has provided us with power over the years until all these new sources are up and running and are proving successful?

  • The energy crisis has not really got going yet. Electricity and gas prices are set to soar. I’ve been predicting this for years.
    The major energy consumers around the world have relied on mainly coal fired generation for decades. They have been switching to renewable energy and the target of net zero.
    They ignored the obvious, the fact that renewable energy is not suitable for energising a national grid. The amount generated depends literally on the weather and when there is no wind, there is no energy. It is expensive, with a high capital cost, high maintenance costs, a twenty year lifetime and an environmental waste problem that has not been solved.
    If that were not bad enough, when the wind is inadequate, we still require electricity. With coal stations and the mines that supply them being shut down, the world is turning to gas. It is now the wonder fuel, the antidote to renewable failure. That is why gas is in huge demand world wide with no sign of short term relief.
    Gemany, with her Energiewende transition to renewables, is even closing down her nuclear generation. Her dependence on wind and gas is an astonishing strategic blunder driven by green ideology. Gas is subject to green taxation and is the next fossil fuel to be driven out of use. We shall all be in the dark by then. Germany will lead the way. Her energy is already the most expensive on the planet and her electricity grid is on the point of collapse. Her Russian supplied gas can be cut off at any time. Even the most ambitious Green must by now be realising that net zero is pure fantasy.

  • Laurence Cox 29th Dec '21 - 1:22pm

    What no-one seems to have mentioned is that the cost of electricity to the companies supplying the customers is the marginal cost of production of the last watt needed to meet demand. So both wind-farms and nuclear power, whose cost of generation is low relative to their capital costs, are making bumper profits as are the extractors of natural gas, both for heating and for electricity generation (because gas prices for heating track the price which gas can be sold at for electricity generation). Those consumer suppliers who are also electricity generators or extractors of natural gas are actually doing very well out of the fuel price crisis.

  • Jenny Barnes 29th Dec '21 - 1:45pm

    “Even the most ambitious Green must by now be realising that net zero is pure fantasy.”

    Net zero is another business-as-usual mirage. Humanity will either go extinct, or learn how to live on 100% renewable energy. The planet will be just fine.

  • Barry Lofty 29th Dec '21 - 2:07pm

    So in the meantime??

  • Nonconformistradical 29th Dec '21 - 2:25pm

    @Barry Lofty
    “So in the meantime??”

    Assist those most in need to improve their house insulation with the aim of using less energy? Perhaps community teams, each lead by someone with appropriate experience, doing it on a DIY basis and teaching others as they go? Helping people to become less dependent on the energy suppliers?

  • Jenny Barnes 29th Dec '21 - 3:46pm

    @barry lofty “the serious implications of this problem have been ignored by people who have, or should have had, prior knowledge of this impending crisis??”

    That’ll be the fossil fuel companies. Too busy making profits, I suspect. Pity they won’t be able to buy a new planet when this one becomes uninhabitable. And of course governments that could have been creating higher insulation building standards over the last 30 years, but didn’t.

  • Barry Lofty 29th Dec '21 - 4:23pm

    Jenny [email protected] We are very unlikely to agree on this subject , large organisations dominate our lives whether we want it or not, fossil fuel companies are looking for huge profits but so will any green energy firms into the future, that’s the way of the capitalism! My concern is that the people left behind in food poverty will be further disenfranchised with energy poverty, if the governments in charge do not make sensible decisions, given the present
    shambles what hope of that!!?

  • As Andy Boddington makes clear in his article, “Heating costs must be paid for alongside other everyday essentials. Those essentials are getting pricey.”

    “Food and catering prices rose by 3.6% in the year to November. There are gloomy predictions of higher inflation. The cost of petrol and oil, including fuel oil, has shot up by 29.4% over the last year. Electricity costs reached a five year high having risen by 18.8%. It is the same story with gas, up 28.8%. The temporary uplift in Universal Credit has ended. Food bank use has been soaring.”

    The ONS reports robust wage growth from August to October 2021 ONS However, real wages have been in decline for most of the period since 2008 real wages

    Going into 2022 it seems likely that real wages will come under further pressure. Public sector pay freezes will end in April next year, but by then inflation will have eroded further a substantial element of existing pay and state pension uplifts will be below current and expected inflation levels for at least the first half of 2022, if not longer.

    Much of the inflation appears to be attributable to imported food and energy costs, so interest rate increases that serve to maintain the sterling exchange rate against the US dollar will be an important element in containing costs and may serve to dampen some of the increases in house prices and rent costs that have been experienced. Whether high inflation is sustained going into 2023 will most likely depend on whether we enter a wage/price spiral that puts added pressure on domestic goods and services as well as imports.

    Inflation is a major political issue for President Biden As Prices Rise, Biden Turns to Antitrust Enforcers in the USA and it may well become a defining political issue here in the UK next year.

  • Nonconformistradical 29th Dec '21 - 6:14pm

    “As Andy Boddington makes clear in his article, “Heating costs must be paid for alongside other everyday essentials.”

    Which is why I keep going on about getting our poorly insulated housing stock better insulated so people need less energy for heating their homes!

  • @Nonconformistradical. A couple of problems with your suggestion that “In which case that would be inadequate regulation – i.e. should these companies have been able to enter the energy market in the first place if they couldn’t demonstrate having such advance supplies” Most obviously, requiring companies to have arranged that kind of advance supplies would add to the normal cost of supplying power, and, by preventing smaller suppliers entering the market would shift it towards an oligopoly, which would likely further raise prices.

    But more generally: We already have a flawed set of pricing regulations that stop the market functioning properly. You appear to be suggesting that, instead of fixing those regulations, we add more regulations to control how energy companies are expected to cope with the bad consequences of the first set of regulations!

    The road to hell is paved with good intentions…. 😉

  • I was shocked to see Kwasi Kwarteng only had energy leaders in, the other day. We have seen energy prices rising since the summer. Why the delay? I suppose the rich don’t realise how this affects the large numbers on low and even middle incomes.
    I see LNG containers are changing direction and coming to the UK to boost our low gas supplies.
    Why has the Government failed to ensure the UK has a sizeable supply in storage as we go into winter? If we were having a long, cold winter, we’d be in crisis.
    This shambles of a Government is lurching from 1 crisis to another and struggles with each one.
    Now it’s a shortage of LFT’s. I’m lucky. Never had 1.

  • Nonconformistradical 30th Dec '21 - 8:52am

    @Simon R re 29th Dec ’21 – 11:44pm
    I don’t pretend to know how best to regulate the market – I only perceive that this market in energy isn’t working effectively from the viewpoint of the less well-off and at least needs to be regulated more effectively so as not to disadvantage the less well-off. That might mean new regulations or it might mean enforcing current regulations better.

    But in any case is it even possible to operate a free market, even with effective regulation, in energy for which demand is to some degree inelastic? We all need for essential living some energy supplies so demand for energy is not totally elastic.

    NB I am not an economist – but I do understand the basic concept of elastic/inelastic demand.

  • Peter Martin 30th Dec '21 - 9:36am

    It’s not just a question of inelastic demand. Supply is also responsive to the price level. Sources of gas, such as from landfill sites, which may not be viable at lower prices will be when prices rise.

    Many of us use gas because it is generally cheaper for heating than electricity. That could reverse if the gas price rises are significant enough. We should be working on new secure and cheaper sources of electricity rather than contracting out the supply of electricity to the Chinese and others.

  • Jenny Barnes 30th Dec '21 - 9:45am

    @NCR ” is it even possible to operate a free market, even with effective regulation, in energy for which demand is to some degree inelastic”

    It’s worse than that. Both supply and demand for energy are inelastic, which is why there are huge price spikes (up and down) when supply and demand don’t match. Negative oil prices a couple of years ago, gas up by 900% now for examples. The fossil fuel cos won’t invest in new production because they fear stranded assets as the world moves to renewables, making the supply situation even worse.

    Short term, not much can be done except put on a thicker jumper, and possibly encourage industrial gas users to use less. Medium term, a big goverment led home insulation programme would be a good idea. Longer term – change the building regs to passivhaus standard, change the fuel source – heat pumps, windmills, solar in hot sunny places like Spain or Morocco, nuclear, and phase out CCGT gas electricity generation . Maybe some district heating fuelled with well seasoned firewood.

  • Switching 3.2 million cars to electricity and 26 million gas boilers to electricity will not be covered by tweaking the insulation of UK properties. What do you propose to do with solid walled houses, flats and high rise blocks? You will need to demolish listed buildings.
    Good luck with that.

  • Nonconformistradical 30th Dec '21 - 9:26pm

    @Peter
    “Switching 3.2 million cars to electricity and 26 million gas boilers to electricity will not be covered by tweaking the insulation of UK properties.”

    I never suggested it would. But the country has a poor track record for insulating dwellings – it’s just a part of addressing a big problem. Wasting energy on heating a poorly insulated house is money down the drain and energy up in the air. No point in replacing the gas boiler with electric heating if a large part of the heat energy is wasted is there?

  • So why the sudden spike in energy costs?

    It’s virtually nothing to do with domestic issues – market structure, regulation and so on (although there are issues around those things). It is all about a relatively sudden cut to European gas supplies – relatively sudden because it has been building for over six months although the media only seems to have noticed about two weeks ago.

    The background as far as I can discover is all part of the US’s undeclared economic war (and possibly soon hot war ☹) on Russia and gas is of course a BIG Russian export, accounting IIRC for about 1/3 of Western Europe’s supply.

    For a long time, Russia has, very reasonably IMO, been increasingly alarmed at the US’s warmongering on its western front, particularly in the Ukraine, through which the main pipeline supplying Russian gas to W Europe runs.

    So, years ago they agreed with the Germans to build a pipeline – ‘Nord Stream 2’ from Russia to Germany under the Baltic at a cost of $11bn. But that was strongly opposed by the US which sanctioned just about everyone involved, delaying the completion by several years. In 2021 it was completed and filled with gas.

    Then the story gets more clouded. Someone, presumably the US, appears to have persuaded W Europe to stop buying on long term contract, presumably to hinder Russia’s ability to undertake major project. That was fine for a time but when the pipeline was finished, Russia refused to supply spot contracts via the Ukraine pipeline – although they have continued contract supplies through it. (Russia has always honoured contracts). Meanwhile, the US continues to breath fire in the direction of anyone wanting to use the new pipeline.

    So, about 1/3 of Europe’s gas supply is tapering to nothing as contracts expire. And because gas has for many years been the easy, cheap, flexible fuel for electricity generation that means lots of Europe’s gas AND electricity supply prices are spiking. Spot prices have briefly risen ~800% above levels of early in the year – but have fallen back somewhat as LNG tankers divert to Europe. When the wind isn’t blowing, there isn’t enough energy to go round.

    What is to be done?

    Short term we have NO option but to buy Russian gas via Nord Stream 2. Longer term we need a coherent energy strategy.

  • UK Gas retailers need to purchase via long term contracts even if the prices may be higher at a particular time. The same model of purchasing in this case finance short term and selling the loans long term was employed by various Finance companies up and until the 2007-8 Crash, e.g Northern Rock, after which they expired.

    Tory cuts to national Gas storage also need to be reversed. We have 3 days worth, while the French have around 100. Typical Tory short termism.

  • We rely on gas for our electricity when renewables fail to deliver. Newly released figures for Q3 show that onshore wind output fell by 38%, offshore by 24%, hydro by 45% and solar by 2%. All of this despite new capacity (609MW) being added.

    Governments around the world are realising that gas is more important than any number of renewables.

  • Jenny Barnes 1st Jan '22 - 2:18pm

    Right now (2pm 1/1/22) UK electricity demand is fairly low: 27GW. Supplied by 12 GW wind, 7GW nuclear, 3.5GW CCGT gas, 1.5GW Biomass (Drax) + some small amounts on interconnectors etc. http://www.gridwatch.templar.co.uk/
    Whatever is happening, with our current generation mix some CCGT, usually at least 3GW and varying up 25 or even 30GW is generating. Which means the marginal electic units are nearly always gas powered, and that sets the price for all the rest, as nuclear and wind will generate at any price. For “renewables to fail to deliver” we would have to have enough renewable capacity to provide at least the average demand on a normal,fairly windy day, That would require something in the region of another 10GW of renewable power. 3 big nuclear stations would do it. so would 3,000 3.5MW wind turbines – though of course you would need more to give the equivalent year round output.
    Peter is correctly pointing out that you need a certain amount of “dispatchable = easily turn-on-and-off able” generation capacity to keep your grid humming along nicely at 50 hertz. Batteries, pumped storage, and contracts to turn things off can provide some of that, while nuclear is good for baseload. With enough wind power, one could use excess to electrolyse hydrogen from water, which would have all sorts of uses.

  • Neil James Sandison 1st Jan '22 - 2:39pm

    Joe Bourke knowing what the problem is will not in the short term help those who face both fuel and food poverty .How do we help those on low to middle income families in the interim period 2022/23 . When will we press the government to put in place the infrastructure that delivers local power generation to the grid more effectively with less waste ? Will be be pressing for better regulation of energy companies to demonstrate that they have secured more sustainable energy resources rather than relying on the spot market ? .Agree improved insulation will help but has anyone worked out how long it will take to insulate all those pre-1919 terraced properties which leak heat like a sieve . How we gain access if they are owned by independent absentee landlords and rented out at modest returns in most of our provincial towns and cities ? .Local government could look at regeneration projects but will need substantive grants possible paid for by carbon pricing dividends but even with a willing government it would take until 24/25 to begin to implement and probable another 10 years to complete .

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