High Energy Costs Hit UK; it gets worse - Bark Sedov

High Energy Costs Hit UK; it gets worse

LONDON — Tia Rutherford is worried about her 3-year-old son.

When energy prices skyrocketed last fall, she stapled fleece blankets over her doors and windows to keep out the cold, and began serving Jacob breakfast in his room so she didn’t have to heat the living room. But she worries that she can’t pay her electric bills and that her son isn’t warm enough.

People in the UK will face similar choices in the coming months as energy bills for millions of homes are set to rise 54% on Friday. It’s the second big spike in energy bills since October, and a third could be on the way as rising demand from the COVID-19 pandemic and now Russia’s war in Ukraine pushes up oil and natural gas prices.

Energy costs are the main driver of rising consumer prices. While inflation is a global phenomenon, it’s a bigger problem in the UK as it is more exposed to soaring natural gas prices than even its gas-dependent European neighbors, where electricity bills and other costs have also skyrocketed. The price of natural gas, used for electricity and heating, has more than doubled in the past year.

In Britain, economists are warning of the biggest decline in living standards since the mid-1950s, fueled by skyrocketing energy costs, food prices and pre-planned tax hikes. According to the Office for Household Responsibility, disposable household incomes, adjusted for inflation, are likely to fall by an average of 2.2% this year.

These figures mask the impact on low-income people, who have been disproportionately affected by the crisis. As they spend a larger percentage of their budgets on food and energy, the poorest quarter of UK households will see their real income fall by 6% this year, according to the Joseph Rowntree Foundation, a think tank focused on improving living standards.

People who depend on government benefits and government pensions are under double the pressure because their annual cost-of-living adjustment was based on annual inflation figures through September — before consumer prices soared.

That means benefits will only increase by 3.1% this year. But inflation jumped to a 30-year high of 6.2% in February and is expected to peak at around 8% this year as the war drives food and energy prices higher, the Bank of England forecast.

As costs rise, people are moving their beds near windows so they can read outside by streetlight, said staff at Christians Against Poverty, which provides counseling for those in debt. Divorced fathers are skipping meals so they can afford to buy food for their children when they visit, and more and more people are reporting that the pressure is leading them to consider suicide.

“The cost of living crisis is really taking lives,” said Gareth McNab, the charity’s director of external affairs. “Almost every single call to our new inquiries team mentions the energy crisis and an inability to deal with it. And yes, it’s desperate out there.”

Energy prices for 22 million homes will rise on Friday when an update to the national price cap comes into effect. Regulators adjust them every six months. Analysts are expecting a third straight rise in the cap later this year, which could leave consumers with utility bills more than double last year’s.

Britain relies more on natural gas to meet its energy needs than European Union countries, which have less nuclear and renewable energy. The UK has also been slower than its neighbors to insulate and seal off the country’s aging housing stock, requiring more energy to heat them.

Britain’s largest gas storage facility was also allowed to close five years ago, leaving the country with just 12 days of storage capacity, compared to around 80 days in Germany, which is also heavily dependent on natural gas. This means the UK has become more reliant on buying gas through ‘spot markets’, which reflect short-term price swings, during the crisis.

“In normal times, we use more energy than (Europeans) to heat their homes, but… the price is low enough that you don’t notice a big difference in the cost of living,” says Arun Advani. an inequality expert at the University of Warwick. “Now that energy prices are going up, they’re paying more, but we’re paying a lot more. And so that difference is magnified.”

Despite this, some European governments have acted more aggressively than the UK in trying to contain costs. France has forced a state-controlled utility to limit electricity price increases to 4% this year. Spain has levied a tax on energy producers’ windfall profits, which are passed on to consumers.

The UK responded in February with a £9 billion ($11.8 billion) package designed to help offset rising electricity bills. Chief Financial Officer Rishi Sunak announced further measures last week, including a cut in the vehicle fuel tax. But he ignored calls to levy a tax on windfall producer profits or to delay a planned 1.5 percentage point increase in income taxes, also scheduled for April.

Sunak said the government needed to keep spending under control amid uncertainty caused by the war in Ukraine and after the public debt rose to its highest level since 1963 last year.

Lawmakers from all parties criticized Sunak for missing the point and suggested he failed to understand the magnitude of the problem for low-income people. But he doesn’t back down.

At the same time, people who have little try to live on less. Chris Price, who runs a charity called Pecan in south London, says food bank customers are skipping potatoes and other root vegetables because they need to be cooked.

“People say, ‘I need food that I can make easily and cheaply because if I put something in the oven for too long it uses so much…electricity or gas,'” he said. “And they’re really unsure if they can afford it.”

These are the people who have also been hit hardest by the pandemic and recent government benefit cuts, leaving them with little to fall back on in the new crisis, said Adam Scorer, executive director of National Energy Action, a charity focused on Focused on energy poverty.

“There is no cutting back. There are no wise decisions,” Scorer said. “You just don’t heat your house and you don’t use your stove and you don’t heat water and you don’t take a shower. You just don’t do things because you can’t afford to do those things. Many people have no choice.”

Rutherford is one of those who run out of elections.

It gets its power from a prepaid meter, often the only option for people falling behind with bills. With prepaid meters, customers can control how much they spend, but they pay high prices and can be left without power if they run out of credit.

This has pushed her to top up the meter, pay off debts she already has with her utility company, and keep her son warm when he comes home from daycare. She has tried to save by turning off the lights and living in the dark, apart from small white Christmas tree lights that use less electricity.

“I didn’t have to live like that before,” she said. “I literally have no money – and my electricity is going to go out.”

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