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‘Serious leaks’ in households’ finances remain, despite new energy price cap

·4-min read

There are still “serious leaks” in household finances, even though the new energy bill price cap may prevent the roof from falling in, according to commentators.

While the new £2,500 cap on average energy bills, announced by Prime Minister Liz Truss on Thursday, will bring relief to households, many are already having difficulty coping, they said.

Richard Lane, StepChange director of external affairs, said the relative relief that people will feel “can’t mask the fact that many people are already struggling at current prices”.

He said: “Benefits should also be uprated this autumn to help address the wider cost-of-living pressures that are disproportionately affecting those on low incomes.”

Ms Truss announced that the typical household will pay no more than £2,500 a year for energy for the next two years from October 1.

It had been due to rise from £1,971 to £3,549 a year under Ofgem’s latest price cap announcement.

Households will still receive the non-repayable £400 payment from the Government as part of the cost-of-living support package previously announced by former chancellor Rishi Sunak, and other support payments promised for this winter will remain in place.

With households facing a range of rising costs, Consumer Prices Index inflation (CPI) reached 10.1% in July, the highest level in more than 40 years.

Earlier this year, the state pension and other benefits increased by 3.1% for the financial year 2022/23.

POLITICS CostofLiving
(PA Graphics)

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown said: “The reality is, we still face a long hard winter, with many pensioners facing difficult decisions about how they manage their fuel bills alongside soaring food prices.

“The average income for a pensioner couple is around £511 per week, so even at this new level some pensioners could see fuel bills taking up almost 10% of their income.

“Single pensioner households could find it harder still – if their fuel needs hit the price cap that’s a whopping 19% of their income allocated to keeping the lights on and the heating running.

“Those pensioners solely dependent on the state pension will find it hardest of all – a full new state pension pays out just over £9,600 a year while those on the basic pension get just under £7,400 – energy bills will continue to be an enormous source of stress.

“Under the triple lock, pensioners are in line for a blockbusting inflation-linked increase next April, but with the cost of bills biting now that feels like a very long way away.”

Ms Morrissey urged pensioners on low incomes to check whether they could be eligible for Pension Credit.

James Taylor, director of strategy at disability equality charity Scope, said: “Freezing the price cap at twice the average cost of a year ago is a sticking plaster on the financial pain disabled people are experiencing.

“The cost of charging a powered wheelchair has doubled in a year. Spiralling costs – energy, fuel, food and inflation – have already left many disabled households in debt and on the brink.”

Mubin Haq, chief executive of charitable trust abrdn Financial Fairness Trust, said: “While Government might have avoided the roof falling in on household finances, there are still serious leaks.

“Our research shows 10 million families are struggling or in serious financial difficulties due to the cost increases they already faced.”

Rocio Concha, Which? director of policy and advocacy, said: “This is a bold intervention that will provide huge relief for many and prevent millions of households being left in the cold.

“However, even with this help, it’s likely that some consumers will still struggle to afford higher energy bills this winter and the Government may need to provide additional support for those on low incomes.”

Mortgages are among the costs that have been rising. Many homeowners are currently on fixed rates, but many will face increases to their monthly outgoings when they eventually take out a new mortgage deal.

The most recent Bank of England interest rate hike added around £50 per month, adding up to around £600 per year onto the average tracker mortgage, according to figures from UK Finance.

House prices have also continued to surge to new record highs, making life tougher for people trying to get on the property ladder.

According to Halifax, a typical property now costs a record £294,260, after surging by 11.5% in the year to August.

The Royal Institution of Chartered Surveyors (Rics) said this week that with average stock levels on estate agents’ books at a record low of 34 homes per branch, the upward pressure on house prices continues.

Rents are also expected to rise over the next 12 months by close to 4% across the UK, according to Rics, amid signs that demand is increasing in the rental market but the supply of available rental properties is falling.

Alicia Kennedy, director of Generation Rent, said renters could “still face devastating decisions over paying rent or staying warm this winter”.

According to recent Bank of England figures, credit card borrowing increased at the fastest annual rate since 2005 in July.

Finance experts previously pointed to those figures as evidence that households are turning to credit and any savings to cope with high bills and falling real wages.