Average income households to be in fuel poverty by 2015

Tuesday, 11 October 2011 11:22

By Ben Salisbury

The vast increase in energy bills since 2004 means that a household on average income is set to be classified as in fuel poverty by 2015.

The government defines a household as being in fuel poverty when it spends ten per cent or more of its after-tax income on gas and electricity.

Energy bills have almost doubled as a percentage of take-home income since 2004. If the price rises follow their current trend then energy costs will take up 7.4 per cent of median income by 2012, 8.2 by 2013 and 10 per cent by 2015.

The cost of gas and electricity has increased six times faster than average wage increases in the same period, from 2004.

The huge increases are mainly influenced by the cost of wholesale gas. These prices are set by the international market and cannot be influenced by UK politicians.

However, the government could reconsider its energy policy. Analysts have calculated that the energy policy choices of the UK government account for ten per cent of the total cost of our bills, mainly due to an obligation to buy a proportion of their electricity from renewable sources and from the European Union’s carbon trading scheme.

A further huge expense that will add to household bills is the government’s proposed £200 billion investment on new infrastructure by 2020. This would help create a greener electricity system and Chris Huhne, the energy secretary, hopes to reform the electricity market to make it viable for energy companies to raise this money, which will mean higher bills for UK households.

It is possible that the huge rises in the cost of utilities over the past seven years may mean that the government changes its policy.

Ann Robinson, Director of Consumer Policy at uSwitch.com, said: “We are facing a £200 billion shopping list of investment required to secure our longer-term supply, cut carbon, boost energy efficiency and roll-out smart metering into all homes. Unfortunately for consumers, British households can expect to be footing the bill. I would urge the Government to calculate the full cost that will be passed onto household energy bills and to then think again about the impact on affordability in the UK.”

Last month Mr Huhne urged customers to help themselves by comparing different supplier tariffs and switching to a better deal. It is true, a relatively low proportion of energy customer’s switch and millions could save money by switching but customers’ best efforts are hindered by the fact that all of the big six utility firms raise prices at roughly the same time and energy bills and tariffs are confusing and complicated.

It is this area perhaps where energy companies deserve our criticism, above claims that they are profiteering. Analysis by Deutsche Bank forecasts that out of the £48 billion UK households are expected to spend on energy in 2015, only £1.3 billion (2.65%) will be profit to the utility firms.

So, it seems the ball is back in the government’s court regarding how to keep gas and electricity affordable to middle and lower income households.

Use the Myfinances.co.uk comparison tables to find the best deal on gas and electricity.
 

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