Most of us can hardly bear to think about what’s going to happen next when it comes to our energy bills, but we can’t bury our heads in the sand for much longer as millions of UK households will see their energy bills rocket as the price cap is hiked to £3,549 from October.
We’ve already been hit with nightmare bill rises. The price cap started increasing as early as April 2021. Then we saw a bigger jump in October last year as the world economy opened up further.
Higher wholesale prices were already heralding a big rise in April this year, but the step change came when Russia invaded Ukraine and threw wholesale gas prices into disarray.
We saw some of the impact in April, when prices were hiked an eye-watering 54% to £1,971, but the rise in October is going to make this look like small potatoes when the price cap will be hiked to £3,549 with regulator Ofgem announcing an 80% energy increase.
The rise is on such a scale that it’s hard to appreciate just how hard it will hit us, but the change will be profound.
It means winter energy bills are set to be more than triple what they were a year ago, costing more than 11% of a household's median disposable income, according to the Office for National Statistics (ONS).
Energy poverty is defined as when a household must spend more than 10% of its income on fuel.
We’ve already seen people cut back on their energy use significantly. Figures from the Office for National Statistics show that around 24 million people are trying to use less energy, and those aged 55-74 are working hardest to keep a lid on it. Those who are already turning the thermostat down and timing their showers are likely to take increasingly severe steps, while even those who have avoided cuts so far are going to need to start saving energy.
This won’t be the end of it either. Ofgem has announced that in future, the energy price cap will be reviewed every three months, so the next hike would follow fairly swiftly in January. Analysts have predicted another rise to as much as £5,386.71. They are then expecting the price cap to drop back slightly next July, but that still means another year of pain.
Will the government act?
There has been plenty of debate over the future of energy prices, and calls from politicians on all sides for more to be done to protect people from the potentially devastating consequences of higher bills. Now that Boris Johnson has ruled out any action on energy bills before he leaves office, an awful lot will depend on who becomes the next prime minister (PM), and the decisions they take between now and then.
There is plenty on the table, from removing the VAT on fuel bills and cutting green levies to financial support for the most vulnerable. The new PM may even consider the more dramatic steps proposed by other parties including cutting energy prices – funded by a windfall tax on energy companies. However, right now, we’re not entirely sure who will be leading the government by the time the energy price cap rises, let alone what they will do about it, so it’s easy to feel hopeless.
Should you refuse to pay?
It’s hardly surprising we’ve seen the emergence of a "Don’t Pay" group, suggesting people don’t pay their bills, on the grounds that they feel energy companies may not be able to chase arrears if there are enough people not paying. It feels like an easy answer to a difficult question, but this is an incredibly dangerous option.
It’s using the Poll Tax protests as an example of when this has worked in the past, because it was axed after people refused to pay. However, it’s not the same thing at all. The Poll Tax was implemented by government and replaced immediately with an alternative way of raising revenue. These are private companies with one way to get paid, and they’ll ensure you pay the price immediately.
In the first instance, missed bills will be recorded on your credit record, so you may find it more difficult to borrow in future. The longer the arrears last, the more damage this will do. There are likely to be late payment fees, and your supplier could pass your debt onto a debt collection agency, which will mean even more extra charges and fees.
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Then, if your bills go unpaid for at least 28 days, and you refuse to agree a repayment plan, they can force you to move to a pre-payment meter. This will mean you can’t use energy without paying — and you’ll pay even more for it. If you refuse to let them in to install the meter, they can get a warrant, and the cost of the warrant will be added to your outstanding debt. In extreme circumstances, they may disconnect you, and again, if you don’t let them in, they may be able to do it remotely if you have a smart meter, or get a warrant from the court.
What can you do?
The first step, especially as winter approaches, will be to cut back on energy use as much as possible. For those with the available cash and access to tradespeople, the rising price of heating your home could mean it’s now cost-effective to consider outlays like double glazing or insulation. Otherwise, there are still steps you can take – like turning the thermostat down by one degree, switching radiators off in rooms that aren’t used regularly, being more ruthless about how often you run the dishwasher and washing machine, or installing DIY draught-proofing.
If you’re wrestling with bills, there’s some help available. This includes a £400 grant for all UK households — £66 in October and November and £67 from December to March — which will be paid to your energy supplier and taken off your bill. For those on low incomes, pensioners and people receiving disability benefits there are additional payments.
If you need more help, your first port of call should be your provider, because many of them provide support and grants for people who are in real difficulty. Even if you’re not a British Gas customer, you may be able to get help from the British Gas Energy Trust. There may also be a local energy grant available for people in your circumstances. If you need any help with this, you can contact Citizens Advice or Stepchange, because both charities have an enormous amount of experience in helping people through the process. Citizens Advice also has an online guide which helps break it down: Grants and benefits to help you pay your energy bills.
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It’s highly likely you will need to find other places where you can free up some cash too. This is far easier if you have an idea of what you’re spending, and the things it makes most sense to cut out of your budget while prices are sky high. Banking apps may have some useful features to make this easier, or you could consider a stand-alone app.
It’s worth considering putting all this information into an online budget calculator. You need to enter details of what you spend across the board, then consider areas where you might be able to shop around. According to the ONS, 26 million of us are cutting back non-essentials, and more than a third have cut back on the essentials.
If you’ve already done everything you can think of, you may need to consider bigger lifestyle changes. These can be incredibly difficult: things like giving up a car can require a complete change of mindset, but when you’re trying to stay on top of rising costs like this, it pays not to rule anything out until you’ve considered it carefully. Inflation isn’t going to remain high forever, and eventually wages will catch up. It’s just a question of finding a way to make ends meet without building up your debts in the interim.
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