2.5 million English households are set to fall into ‘fuel stress’ from today, and a further 2.5 million could follow them in October

The number of English households in ‘fuel stress’ will double from 2.5 to 5 million as a result of the price cap rising from today (Friday), with another 2.5 million households at risk in October if the price cap rises again to £2,500, according to new Resolution Foundation briefing.

Stressed Out shows that low-income households will feel the tightest pinch from rising bills, with the poorest fifth of households set to spend over twice as much of their family budgets on energy bills as the richest fifth (10 per cent compared to 4 per cent).

Families living in poorly insulated homes (with an energy efficiency rating of E) will feel rising energy prices more than others, with their bills set to be £320 a year higher than those in similarly-sized C-rated homes. Come October this ‘efficiency gap’ could hit £380.

The Government’s Energy Rebate Scheme – a £150 Council Tax (CT) rebate and a £200 discount for all billpayers – will go some way towards reducing the impact of the energy price cap rise on low-income households. The support will limit the rise in low-income households’ spending on energy bills from 7 to 10 per cent, rather than 7 to 12 per cent.

However, the Foundation warns that support doesn’t go far enough in protecting low-income households from rising energy bills, while the scheme’s design is deeply flawed.

As a result, the number of households experiencing ‘fuel stress’ – spending at least ten per cent of their total household budgets on energy bills – is still set to double overnight from 2.5 to 5 million households.

And with the price cap set to rise again on 1 October, the number of families in fuel stress will continue to climb sharply unless further support is provided.

The briefing shows that a £500 rise in the price cap to £2,500 on 1 October – less than the OBR forecast of a £830 rise, although this was made when gas prices were higher than they are now – would mean that almost a third (32 per cent) of all families in England would fall into fuel stress – 7.5 million households in total.

Almost a quarter (24 per cent) of households in the North East are in fuel stress, the highest in the country, a figure that could rise to 41 per cent in October.

Given these escalating levels of fuel stress, the Chancellor may be tempted to offer another CT rebate to households in the autumn.

However, while this policy is broadly progressive, it is not the most effective way of targeting support at low-income households. 11 per cent of the poorest fifth of households are ineligible for the rebate, because they live in Band E-H properties, while 59 per cent of the richest fifth are eligible.

Poor households in London, where one-in-five of the poorest fifth of households live in Band E-H properties and are therefore ineligible for automatic support, are most likely to miss out.

Furthermore, the council tax system doesn’t guarantee that the rebate will go to those paying higher energy bills. Many landlords pay their tenants’ council tax and are under no obligation to pass the rebate on, leaving their tenants to foot the higher bills.

The Foundation says that more support with energy bills is needed, and that the benefit system is a far more effective route to helping low-income households.

Finally, the Foundation says that, while short-term measures are needed to support families through the cost of living crisis, the Government also need to raise its game on its wider energy strategy, so that households are less exposed to future fossil-fuel price shocks.

This strategy should include scaling up and accelerating plans to better insulate Britain’s housing stock, reforming the UK’s energy market, reducing our dependence on natural gas via an accelerated move to heat pumps, and a faster rollout of renewable and nuclear electricity.

Jonathan Marshall, Senior Economist at the Resolution Foundation, said:

“Today’s energy price cap rise will see the number of households experiencing fuel stress double to five million. With the price cap is expected to rise sharply again on 1 October, a further 2.5 million households could fall into fuel stress this autumn, unless more support is provided.

“There are no easy ways to protect people from rising bills in the current climate. But with many of the poorest households missing out on the Council Tax rebate, this scheme should be used to supplement, rather than replace, support via the benefit system, which is better equipped to target lower-income families.

“Another increase in energy bills this autumn hastens the need for more immediate support, as well as a clear, long-term strategy for improving home insulation, ramping up renewable and nuclear electricity generation, and reforming energy markets so that families’ energy bills are less dependent on global gas prices.”