Help with energy bills

The following links give details of the support available from government and other organisations for customers who are struggling to pay their bills:

Wholesale energy prices increased rapidly from the second half of 2021 onwards. Many consumers were protected, at least initially, by the energy price cap. However, the price cap increased by 54% in April 2022 and Ofgem planned to increase it by a further 80% on 1 October 2022.

On 8 September the Prime Minister announced that a new Energy Price Guarantee would instead be introduced from 1 October. This has been set at £2,500 a year and will last two years. It is lower than the original Q4 2022 price cap, substantially lower than forecasts for 2023, but still 27% above the summer 2022 cap.

The monthly increases in both gas and electricity prices in April 2022 alone were by far the largest ever recorded on a series going back to 1988. The annual increases to April 2022 were also the largest ever recorded on a series going back to 1970.

This paper looks at data on trends and variations in domestic energy prices and the prospects for prices in the near future.

Trends in prices up to 2021

Gas prices were stable or falling for much of the period from 2013 to 2020. They started to increase towards the end of 2021. The average bill for the year was £575 compared with almost £700 in 2014.

Electricity prices increased for much of the last decade. Average bills were £760 in 2021 compared to £450 in 2020, a 36% real increase.

Prices in 2022 and beyond

The energy price cap increased by 12% in October 2021, 54% in April 2022 and was due to increase by 80% in October 2022 (gas by 91%, electricity by 70%). The April increase was equivalent to £700 more across a year for ‘typical’ levels of dual fuel consumption paid by direct debit. The October cap would have been an increase of almost £1,600.

The new Energy Price Guarantee will mean that prices people pay for gas and electricity from 1 October 2022 will be substantially less than under the original Q4 2022 cap and forecasts for the cap in 2023. At £2,500 for typical annual consumption levels, it will still be 27% above the summer 2022 cap. The gas element is increasing by 37%, electricity by 17%.

Households will also receive the £400 Energy Bills Support Scheme (EBSS) payment which covers the period 1 October 2022 to 31 March 2023.

The Government has said that the Energy Price Guarantee will cost £31 billion in the first sixth months of the scheme. The IFS has estimated that the scheme, together with support for non-domestic consumers could cost £100 billion in its first year.

The rapid increase in prices in late 2021 led suppliers to withdraw cheaper fixed price tariffs. The large majority of households are now on Standard Variable Tariffs (SVTs) which are controlled by the price cap.

Customers not covered by the cap or energy price guarantee

There is no price cap on non-domestic energy so increases in business energy bills could be larger still, affecting the economic viability of some and feeding through to higher consumer prices in general. The Government announcement on the Energy Price Guarantee said that there would be “equivalent support” for businesses and other non-domestic consumers.

On 21 September it announced that households not on the gas grid and using heating oil or other fuels would receive a payment of £100. It also said that there would be equivalent support for households not on standard gas/electricity contracts such as those living in park homes or on heat networks. The Government also released details of its support for non‑domestic consumers, the Energy Bill Relief Scheme, on 21 September.

Households in Northern Ireland were not protected by the price cap or Energy Price Guarantee. The Government announced its plans for support for households in Northern Ireland on 21 September. This includes support equivalent to the Energy Price Guarantee which will be introduced in November bills and backdated to October. There will also be a £400 discount on bills through the Northern Ireland Energy Bills Support Scheme

Crude oil prices jumped when Russia invaded Ukraine on 24 February 2022 and continued to increase through early March. These increases quickly fed through to heating oil prices.

Average heating oil prices increased from just over 20 pence a litre at the start of the first lockdown to 99 pence a litre in mid-June 2022, before falling back somewhat in July and August.

Daily average UK heating oil prices increased from 67 pence per litre just before the invasion to 81 pence per litre at the end of February, reaching a peak of 160 pence per litre on 10 March. Prices fell quickly to around 100 pence per litre and have remained close to this level from late March.

What support is the Government offering households?

In February 2022 the Government announced a package of support to help households with rising energy bills,

The package includes a £200 upfront discount on bills in October 2022 (paid for by customers in £40 instalments over the following five years), a £150 Council Tax rebate for around 80% of households in England, £144 million in discretionary funding for local authorities and £715 million for the devolved administrations.

On 26 May 2022, when the October cap was forecast to be around £2,800, the Chancellor announced a further package of measures intended to help with the cost of living, including higher energy bills, in 2022‑23. This included:

  • Doubling the upfront discount on bills to £400 for all households and scrapping the requirement for it to be repaid.
  • A £650 one-off payment to around 8million households on certain means tested benefits
  • A £150 one-off disability cost of living payment for people who receive certain disability benefits
  • A one-off £300 payment for over 8million pensioner households
  • An additional £500 million of local support through the Household Support Fund.

Households can receive multiple elements of this package if they are eligible. The total value of this additional support in 2022-23 is £15.3 billion. The gross cost is £21.3 billion as it converts £6.0 billion of earlier support from a loan to a grant.

This extra spending will be partly supported by a new windfall tax, the Energy Profits Levy, which the Government expects to raise £5 billion in its first year. The briefing Energy Bills Support Scheme: Government policy and FAQs gives more details.

On 8 September the Prime Minister announced that a new Energy Price Guarantee would replace the price cap for two years form October 2022. Its level is £2,500 for typical annual consumption levels. This is over £1,000 less than the original Q4 2022 cap. Households are still eligible for the support announced in the February and May 2022 support packages.

Why have energy prices increased?

Prior to Russia’s full-scale invasion of Ukraine in February 2022 there was an increase in demand for oil and gas as economies around the world came out of lockdown. Supply did not keep pace with the higher demand for various reasons. Increased gas prices fed through to increased electricity prices.

The Russian invasion of Ukraine in 2022 caused oil and gas prices to jump due to concerns about disruption to supply. Sanctions on Russia, the embargo on Russian oil, a potential embargo on Russian gas and cuts in Russian gas supply to Europe have pushed oil and gas prices up further still. Lower electricity production in some sectors have also helped to push up power prices. Drought in parts of Europe have led to lower hydroelectric output and a large number of French Nuclear reactors were offline in late summer.

How will price rises affect lower income households?

Spending on energy varies less by income than any other spending category. This means lower income households have to spend a much larger share of their family budgets on energy than higher income groups. Recent sharp increases in energy prices will have a disproportionate impact on lower income households.

The April 2022 price cap and Energy Price Guarantee level from October suggest that it would cost the poorest 20% of households an additional £1,000-1,100, and pensioner households around an additional £1,400, to use as much energy in financial year 2022-23 as they did in 2020‑21. This is before the extra support the Government has announced is taken into account.

Components of a typical energy bill

The October to December 2022 price cap (now superseded by the Energy Price Guarantee) consisted of:

  • 70% wholesale costs of energy
  • 10% network costs
  • 5% operating costs
  • 4% policy costs (levies to support low carbon generation, energy efficiency and vulnerable customers)
  • 5% VAT
  • 2% assumed suppliers (profit) margin
  • 4% other costs

Variations in prices

Customers who pay by direct debit have traditionally been offered the cheapest tariffs. The gap between payment methods has fallen over time, especially after 2017 when a price cap on prepayment meters was introduced.

There is relatively little difference in energy prices across the country. Combined gas and electricity bills for typical levels of consumption varied in 2021 from around £1,280 in the East Midlands to £1,360 in Merseyside and North Wales. The Energy Price Guarantee unit costs and standing charges vary by region. The annual totals under the scheme, for typical levels of consumption, vary from £2,445 in the Northern energy supply region to £2,566 in North Wales & Merseyside.

Over much of the last decade smaller energy suppliers have tended to offer cheaper tariffs than the standard variable tariffs (SVTs) offered by large established companies. Wholesale price rises from summer 2021 has meant that most of these cheaper offers have been withdrawn.

In the second half of 2021 UK domestic gas prices were below those in most of the EU, while UK electricity prices were higher than in most of the EU.

Further information

Readers may be interested in the following related briefing papers from the House of Commons Library:

 The following pages include the most useful official data on energy prices:

Related posts