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‘Households will get poorer’ even if energy bills frozen, economists warn MPs

·2-min read
MPs have been warned by economists over rising energy bills (Peter Byrne/PA) (PA Wire)
MPs have been warned by economists over rising energy bills (Peter Byrne/PA) (PA Wire)

Households “will be getting poorer” over the coming months even with further financial support to freeze Britons’ energy bills, economists have warned.

Economists and experts told ministers at the Business, Energy and Industrial Strategy select committee that sharp energy price rises mean the UK will struggle to avoid a recession, irrespective of action from a new Government.

It came as Liz Truss was set to be appointed as the next prime minister by the Queen at Balmoral.

Thousands of people will have their energy cut off this winter

Torsten Bell, the Resolution Foundation

Ms Truss and her new Chancellor, widely expected to be Kwasi Kwarteng, are reported to be planning a freeze in bills which could cost around £100 billion.

However, Torsten Bell, chief executive of the Resolution Foundation, said millions of households will still face a tough winter.

“Even with the big policy announcement this week, households will be getting poorer,” he said.

“They don’t have lots of non-essential spending and luxuries they can cut to pay their energy bills and that context is really worrying.

“Thousands of people will have their energy cut off this winter.”

The economist stressed that the situation will be particularly tough for people on pre-payment meters, as they may not be able to build arrears.

Other customers are likely to build up “very large arrears” which could damage their credit ratings and have a long-term impact to their financial wellbeing.

It comes as the Bank of England has warned that inflation is set to soar to more than 13% this year and average annual energy bills had been expected to jump by 80% in October from £1,971 to £3,549 without further action.

We estimate that at least one in five people won’t be able to pay energy bills in October if nothing is done

Clare Moriarty, Citizens Advice

Clare Moriarty, chief executive of Citizens Advice, stressed to MPs that her advisers are “already seeing a cost-of-living crisis” in communities across the UK, irrespective of whether households face soaring bills in October.

She said: “We estimate that at least one in five people won’t be able to pay energy bills in October if nothing is done.

“We hear the messages about support packages, but right here on the ground we are already seeing very large numbers of people who simply cannot keep lights on and food on the table.”

Mr Bell and Tom Waters, senior research economist at the Institute for Fiscal Studies, both cautioned that it would be difficult for the UK economy to avoid recession even with the proposed financial support measures.

“When you are seeing inflation hit 10%, and even higher, but earnings are not keeping up with it, you would expect that to feed through to consumer spending whatever measures,” Mr Waters said.

“It’s difficult to see how you could avoid a pretty severe hit to the economy.”