The price is right: The April 2022 energy price rise and the Government’s response

Resolution Foundation overnight analysis of the announcements made yesterday by Ofgem, the Chancellor and the Bank of England. Key findings from the analysis include:

A tight squeeze for low-income families. The poorest fifth of households are still set to experience a major rise in energy costs from April, with the average proportion of their spending on energy bills rising from 7 to 10 per cent even after yesterday’s package.

• Big gaps in support via the Council Tax Rebate. More than one-in-ten of the poorest households in England, 640,000 households in total, live in Band E+ properties and therefore won’t be entitled to the £150 rebate.
• Levelling up in action? Over a quarter of households across London, the South East and the South West won’t be eligible for the Council Tax rebate (due to living in Band E+ properties), compared to fewer than one-in-ten households across the North.
• More progressive than cutting NI. By providing flat-rate rebates to households, the Chancellor’s package was much more progressive than a cut to National Insurance (or cutting VAT on energy bills).
• 2022: the year of the £1,000 living standards squeeze. The bigger picture on the cost of living crunch was outlined by the Bank of England, which forecast that real household disposable income fall by 2 per cent in 2022 – the largest fall on record, and equivalent to an average £1,000 income loss for families across Britain.

Mike Brewer, Chief Economist at the Resolution Foundation, said: “Yesterday the Chancellor announced a bold plan to limit the impact of soaring energy bills. But by not targeting families most in need of support, and by trying to minimise the cost of support to the public purse, families will still face significant bill rises from this April, and higher bills for many years to come to pay off the cost of the Chancellor’s new bills loan scheme.

“Repurposing the Council Tax system to pay lump-sum grants to most households is another innovative policy from HM Treasury. But Council Tax band is a crude measure of need, and the result is that 640,000 of the poorest households will end up getting less help than some of the richest households in Britain.

“The £350 energy bill rebates will soften the cost of living crunch this Spring. But families across Britain are still set for recession-era levels of squeezed budgets this year, with the average family seeing their incomes fall by £1,000 over the course of 2022.”