The Rise in Utility Bill Costs
For many of us, the past year has been incredibly tough financially. The Covid-19 pandemic has caused widespread job losses, employees have been furloughed and businesses of all sizes are going under due to the lockdowns.
As if the challenges of the past 12 months haven’t been enough, we are now facing a further blow – as utility bills are increasing, putting extra stress on already beleaguered households, that are finding it hard to survive as it is.
The increases began in April after the government lifted the energy bill price cap set earlier – at a time when finances were squeezed anyway due to the crumbling economy.
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According to the Office for National Statistics, the number of job vacancies in March 2021 was down by almost one-quarter (23%), compared with March 2020. The worst affected sectors continue to be the arts, recreation, entertainment, accommodation and foodservice industries.
The national unemployment rate stands at 4.9%, with 56,000 fewer people in employment in March 2021 than there were one month earlier, as the third lockdown continued.
People are having to take a second job just to make ends meet, as they try to repair their depleted finances. Between January and March 2020, the number of people in the UK with a second job was 1.2 million, according to government statistics.
By the end of May 2020, some 200,000 of those employees had already lost their job, only two months into the first Covid lockdown.
Why the price rise?
Utilities regulator Ofgem says the price cap for default domestic energy deals is being raised to cover the energy companies’ extra costs. An increase in wholesale costs to suppliers is blamed for the changes.
Ending the current price cap means the typical electricity and gas customer is likely to see a price hike of £96 to £1,138 per year. The timing couldn’t be worse, according to charities, who have described it as a “double whammy” hitting householders, as it coincides with the winding down of the government’s Covid-related support schemes.
About 4.7 million people are still on furlough, with the government covering up to 80% of their wages during the crisis. It has been announced the scheme is going to end in September. As the Covid restrictions start to lift and the furlough scheme ends, employers will have to pay their workers’ salaries again.
There are fears of redundancies in those sectors worst hit by the pandemic, as businesses who haven’t recovered find they can’t afford to pay the wages.
Council Tax increases
As well as utility bills going up in April, Council Tax also increased at the same time, by as much as 7.5% in some areas. While Council Tax rates were frozen this year in Scotland, it was business as normal in England and Wales, with the usual annual increase implemented.
Of the English and Welsh local authorities, 83 had increased their Council Tax rates by more than the 5% cap that the government had recommended, but not made mandatory. The increase is particularly unwelcome due to the majority of households still impacted financially by the coronavirus pandemic.
Most water bills in the UK have also increased, but not as significantly as energy bills. The biggest increase is £14 per year.
“Fair price” for energy
Chief executive of Ofgem Jonathan Brearley said the organisation had carefully scrutinised the utility bill increases to make sure customers were still paying a fair price for their energy. He says he “expects suppliers to set their prices competitively”, while still treating customers fairly.
He also urged suppliers to give customers in “financial distress” access to the relevant support, suggesting a price increase in spring was better than waiting until the autumn when more energy would be used.
Energy bills have been steadily going up for more than a decade, with the average annual bill for electricity being £542 in 2007. This had increased to £837 by 2019, just before the pandemic started.
Price cap questioned
Peter Earl, energy head at consumer website Compare the Market, said it was an “extraordinary move” that suppliers had chosen to increase energy costs for millions of householders by an average of £96, considering the current environment.
He said it made people question the whole point of the price cap, which had been introduced to protect vulnerable households. It is set twice yearly by Ofgem, impacting 11 million households in England, Scotland and Wales whose discounted deals have ended. Northern Ireland sets its own price cap.
The four million UK customers on prepayment meters haven’t escaped the rise, as their price cap will increase by £87 to £1,156 per year.
During the lockdown, people who were struggling to pay their energy bills were turning off the heating, even in winter, to save money.
Rise in arrears
Citizens’ Advice has opposed the rise in utility bill costs, pointing out 2.1 million householders are already behind with their energy bills – an increase of 600,000 compared to before the pandemic.
The organisation expressed serious concerns over increasing debt, especially since the government had announced plans to withdraw the extra £20 per week Universal Credit in September – awarded to recipients in 2020. The increase in utility costs would be another “heavy blow” for many households, according to Citizens’ Advice chief executive Alistair Cromwell.
However, the energy suppliers’ trade body, Energy UK, supports the increase, saying the price cap will be fair to both suppliers and customers, while reflecting the cost of buying energy.
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