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UK's low income households to be worst hit with rising energy prices

·Finance Reporter, Yahoo Finance UK
·3-min read
UK's low income households to be worst hit with rising energy prices
Households with lower incomes will have a tougher time with soaring energy prices. Photo: Getty

Two in three Brits said their cost of living had increased in the past month, with most pointing at gas and electricity bills as the main reason for the rise.

Energy bills are set to soar this year as analysts are predicting as much as a 50% increase due to sky-high global gas prices.

Of the two-thirds of adults in Britain that reported noticing their cost of living increasing in December, 79% of those cited higher gas and electricity bills as the main factor for the squeeze, according to the Office for National Statistics (ONS).

Of these, about under a third said that they were cutting back on spending on fuel such as gas and electricity. This means that around one in five Britons have cut back on energy usage to save money.

Read more: Savers risk losing thousands with pensions that deliver poor value

While rising energy prices will affect most households across the country, they are more likely to disproportionately affect those on the lowest incomes.

In 2020, the poorest 10% of households spent more than half (54%) of their average weekly expenditure (£298.90, $403.48) on essentials such as housing, which includes electricity and gas, food and transport.

In comparison, those in the richest 10 spent 42% of their average weekly £1,073.20 budget on the same essentials.

More than half of the families in the UK (53%) said they were spending less on non-essentials, and around a quarter (26%) were using their savings.

Read more: Majority of Brits won’t be able to save in 2022 due to higher bills

“Energy prices have hit poorest households hardest, and we’re expecting April to deliver a gut punch to millions," Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said.

"For people in inefficient houses and on low incomes this is a toxic combination. The government tracks those with an energy efficient rating of D or lower who are below the poverty line when housing and fuel costs are taken into account — known as being fuel poor.

"3.18 million UK households are currently in this horrible position, including over half of those on low incomes. To make matters worse, we can expect this figure to ramp up significantly over the coming months as prices rise further."

Ofgem, the UK's energy regulator, will announce its new energy price cap on 7 February. Analysts at Cornwall Insight say it could rise by more than 50% to £1,925 a year for a typical user.

Prime minister Boris Johnson and chancellor Rishi Sunak are reported to have agreed to prioritise “targeted support” for less affluent families struggling with rising energy costs rather than the same relief for all households.

The package of measures aimed at helping millions of low-income households with the looming spike in their energy bills should be finalised this week.

Watch: What is inflation and why is it important?