Soaring energy prices are hitting UK households and energy providers in a market that has realized that the cost-of-living crisis in Britain is not going away soon and will get even worse come next winter.
Skyrocketing gas and power prices since the autumn of 2021, pushed even higher by the Russian invasion of Ukraine early this year, have made paying the energy bills difficult for millions of Britons, while utilities are piling up losses and billions of pounds of unpaid bills.
In April, the situation grew worse when the so-called Energy Price Cap was raised by more than 50 percent, doubling the number of fuel-stressed households in the UK overnight.
The cost of living crisis “is going to get truly horrific” in October this year, when the twice-yearly-adjusted price cap is set to spike again, Keith Anderson, chief executive at one of the largest providers, ScottishPower, told a Parliament committee last month.
The UK has a so-called Energy Price Cap in place, which protects households from excessively high bills by capping the price that providers can pass on to them, but which additionally burdens energy providers.
But as the price cap was raised significantly—because of the high energy prices in the six months prior to the decision for the increase made by energy market regulator Ofgem in February—households are increasingly struggling to pay their energy bills.
“There is no immediate quick fix,” Josh Buckland, a partner at Flint Global and a former government energy adviser, told Bloomberg.
Energy providers are calling for a shift in government policy as they begin to see the impact of unpaid bills as households struggle with high energy, food, and fuel prices.
Around 6 in 10 adults in the UK who reported their cost of living had increased were most worried about an increase in their gas and electricity bills, according to the latest survey of the Office for National Statistics.
As a result of the cost of living crisis, Britons now spend less on non-essentials, use less gas or electricity at home, and cut back on non-essential journeys in a vehicle, the statistics office found.
“There is a massive concern and a huge amount of anxiety from people on the phones about what they are going to do, the concern they face and the real worry. A lot of people are facing this issue for the first time,” ScottishPower’s Anderson told the Business, Energy and Industrial Strategy Committee at the UK House of Commons in April, three weeks after the energy price cap was raised by 54%.
“Just about 10% of our customers are currently late in payment,” Chris O’Shea, CEO at British Gas owner Centrica, told the same committee.
“We are seeing an uptick now, but it will get worse—a lot worse—without any further intervention, come October,” O’Shea added.
ScottishPower’s Anderson echoed O’Shea’s position, saying that “Come October, that is going to get truly horrific. It has got to a stage now where I honestly believe that the size and scale of this is beyond what I can deal with. It is beyond what I think this industry can deal with. It needs a massive, significant shift in Government policy and approach towards this.”
Inflation in the UK is likely to surge to around 10% in the fourth quarter of 2022, mainly due to the expected additional rise in the energy price cap in October, the Bank of England said earlier this month, warning of a “very sharp slowdown” in activity, although central bank officials stopped short of naming it “recession”.
Analysts and energy providers agree that this price shock is not just a short-term problem with a quick fix.
‘It is slowly dawning that the cost of living crisis is not going away, that inflation is going to push towards 10%, that interest rates are rising, and that of all the bills which citizens face, the energy bills are the ones that really stick out,” Sir Dieter Helm, Professor of Economic Policy at the University of Oxford, wrote earlier this month.
By Tsvetana Paraskova for Oilprice.com
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