On 8 September the government announced an Energy Price Guarantee that will limit the energy price cap to £2,500 for two years from October.
This measure alone will save the average household £1,000 a year compared to the previously announced October cap of £3,549. It comes on top of the support package announced in May of a £400 energy rebate to all households, £650 cost of living payments to those on means-tested benefits, a £150 payment to households receiving disability benefits and a £300 increase to the Winter Fuel Payment for pensioners.
What will these measures mean for people on the lowest incomes? Will they be enough to ensure families can meet their essential costs? Policy in Practice analysed benefits administration data from over 114,000 low-income households across the UK to find out.
Low-income households will save an average of £62 on monthly energy bills with the Energy Price Guarantee
The Energy Price Guarantee is a welcome measure to reduce energy bills. When it comes into effect in October low-income households will see an average decrease of £61.56 on their monthly energy bills.
The policy will offer more support to larger households which tend to have higher energy costs. Couples with children will see the largest savings in their energy bills of £88 per month, as shown in Figure 1. Overall, it will provide certainty of the maximum cost of a unit of energy for two years and will reach all households.
Figure 1: Change in the percentage of households with negative budgets from February to October 2022 by household type
Government support will reduce the number of low-income households with negative budgets by 4%
Figure 2: Change in the percentage of households in negative budgets from February to October 2022 by Household Type
The Energy Price Guarantee, combined with May’s cost of living payments, offers a basic level of protection for households on means-tested benefits. The dotted line in Figure 2 shows that the number of people with negative budgets would have risen if the original £3,549 energy price cap were in place. A household with a negative budget does not have enough income to cover essential costs like food, water or clothing.
With the support in place we project the number of households with a negative budget will fall. This includes the remaining £324 payment to households on means-tested benefits, the £150 payment to households on disability benefits, the £400 energy rebate and the increased Winter Fuel Payment averaged for six monthly instalments.
The combined impact of the Energy Price Guarantee and the cost of living payments bring the proportion of single households in negative budgets back to rates seen in February, when CPI inflation was 6.2% and the energy price cap was £1,277. This is positive as single households are likely to have a reduced capability to meet rising costs due to their smaller household size.
We anticipate smaller reductions in the number of couples with children and lone parents in negative budgets compared to single households. This is because larger households tend to have higher costs, yet receive the same level of flat rate support from the cost of living payments. These households are likely to need further targeted support to ensure they have enough to cover their essential costs.
Households not receiving cost of living payments could still see income fall by £127 per month compared to February
Figure 3 shows the difference between take-home income for households receiving targeted cost of living payments, so that’s people in receipt of means-tested benefits, pensioners and disabled people, compared with households that aren’t.
Households that receive the additional support will be £105 better off compared to those that don’t however they will still see an overall decrease of £22 per month compared with February. Higher energy use in the winter could further decrease take-home income.
Figure 3: Differences in take-home income by household type from February to October based on whether the household received cost of living payments
Without the cost of living payments the Energy Price Guarantee is less effective at helping people on the lowest incomes.
About 2% of low-income households known to Revenue and Benefits teams won’t receive one of the qualifying means-tested support payments. These households are likely to be much worse off this winter. These households are just about managing.
Couples without children who do not receive this support could see their income fall by £178 per month from February to October. This is followed by couples with children who see their income fall by £156 per month.
Like those that receive the cost of living support, these households are exposed to other inflationary pressures, like the growing cost of the weekly shopping. Yet these households have a reduced capacity to meet their essential costs without extra support. Many of these families are one broken appliance away from slipping into debt.
The Energy Price Guarantee must be followed with more targeted support to reach just about managing households
Without the cost of living payments the Energy Price Guarantee is less effective in reducing the percentage of households with negative budgets. In October, roughly 29% of households not receiving the cost of living support had negative budgets, taking into account the Energy Price Guarantee.
For singles not receiving extra cost of living support, the guarantee reduces the share of those in negative budgets from 50% to 37%.
For lone parents and couples with children, the guarantee maintains the level of households in negative budgets from July at 17% and 22% respectively.
For couples without children, the share of those in negative budgets increases under the guarantee from 39% to 41%.
The lack of targeted support, along with higher household costs, means that more households will fall into negative budgets and more households into poverty.
Figure 4: Change in the percentage of Just About Managing households in negative budgets from February to October 2022 by Household Type
How you can identify households that are just about managing in your council
The Energy Price Guarantee alone does not provide certainty that low-income households will be able to pay their bills. Cost of living support will need to be targeted to ensure households have enough for their essential costs.
Local authorities under pressure to administer Household Support Fund payments should target the 2% of households on housing benefit that are missing out on this support.
To learn more about how administrative data can help councils provide targeted support, please join our webinar on Just About Managing Households. We will be joined by our guest speaker, Jane Worrell, Revenues and Benefits Senior Specialist, Folkestone and Hythe District Council.
See how you might target households in need of support using our LIFT platform. Or contact firstname.lastname@example.org to hear more about our tools.