The government has announced an Energy Price Guarantee, a measure that will reduce the October energy price rise from a widely anticipated £3,549 to £2,500 for the average household for the next two years.

The package of measures announced yesterday will give imminent and universal help to all households but still won’t be enough to stop families going into poverty at a time when 10.6% of families on low incomes can’t meet their current costs. Jack Rowlands discusses the impact on households, and identifies where help is still needed.

Energy Price Guarantee gives families certainty over challenging energy prices

The average household was set for an 80% rise in the energy price cap this October. The introduction of the new Energy Price Guarantee means the government will cover part of the rising cost of energy by capping the price of energy at £2,500 per year for the average household. The measure will be in place for the next two years.

After accounting for the previously announced one-off £400 cost of living payment and £150 council tax rebate, household bills will stay close to the existing cap of £1,971 for this year.

Bar chart showing the default energy price cap under different scenarios from April 2021 to October 2022The Energy Price Guarantee gives households two years of certainty about the maximum cost of energy after months of ongoing price cap projections. For those on means tested benefits, the typical bill could go as low as £1,450 when receiving the £650 payment this year, and lower again for those eligible for the £150 council tax rebate for bands A-D.

At a cost of £100-150 billion, the support will be long lasting and expensive. Though not confirmed at the time of announcement, it is likely to be funded through borrowing rather than a windfall tax as the Labour party had proposed, as well as by moving green levies into general taxation.

Energy Price Guarantee covers more than gas and electricity costs

The Energy Price Guarantee also supports people with less standard energy arrangements, such as those in park homes, those paying to their landlord, and those reliant on LPG or heating oil. This includes bringing forward legislation for Northern Ireland where around 70% of homes use oil, and are not protected by the energy price cap.

Those on fixed rate contracts are, according to Martin Lewis, set for a per pound reduction in energy costs in line with reduction to the price cap, though the details of this are not yet in the government’s statement.

Visual of tweet by @MartinSLewis listing 15 points for consumers to know about the new Energy Price Guarantee

Source: @MartinSLewis

Low income households will still need more support

Despite lowering energy bills for millions of households across the country the Energy Price Guarantee will still leave people on low incomes in a very difficult position this winter if further targeted support is not announced.

Analysis by Policy in Practice for the Centre for Social Justice found that 10.6% of low income households already cannot meet their expected monthly costs. Data from our Low Income Family Tracker (LIFT) shows that 51% of low income households are in fuel poverty now, even before the effects of the October cap rise.

On energy costs, Equifax figures show that the number of households missing one or two bills for the first time had increased by 22% between June and September 2022.

Citi forecasts show inflation reaching 18.6% in January, with today’s measures only reducing this by around 5%. This comes after years of cuts to basic rates of means-tested benefits between 2013 and 2019. 2022 will be no different as benefits rose by only 3.1% in April, leaving low income households with far less spending power.

Recent analysis by Policy in Practice breaks down the unequal impacts of energy bills by household type, highlighting the inadequacy of the Energy Price Guarantee for those with greater than average energy requirements. The cap only limits the cost of energy per therm so less energy efficient properties, larger families and those on prepayment meters will pay more as a share of their income compared to other households.

Extra targeted support in the form of cash payments or uprated benefits is vital so that households on benefits do not see another hit on their incomes this October. This will also allow households to choose how to tackle problem debt, flexibility that the Energy Price Guarantee does not give. In addition, the standing charge means even those households who reduce their usage will see that part of their bills rise

The certainty provided by the two year Energy Price Guarantee is welcome yet it exposes the lack of certainty provided elsewhere. For example, businesses will only receive equivalent support lasting six months, and people receiving the disability or pensioner cost of living payments do not know if this will continue next year.

Further analysis to come on what the Energy Price Guarantee means for low income families

Next week we will publish detailed analysis on the impact of the Energy Price Guarantee for people on low incomes.

We will also be rolling out updated forecasts in the Low Income Family Tracker, enabling local authorities to see the expected impact of the price cap rising to £2,500 on low income households within their boroughs.

This will give our local authority clients the information they need to identify individual households struggling the most, and the ability to target discretionary support and benefit take-up campaigns directly to them.

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Further reading: our analysis and response to the cost of living crisis

New analysis: Increasing Universal Credit by 13.3% will help low-income households pay for increased energy costs

Our new analysis shows that increasing Universal Credit will neutralise rising energy bills and household costs for low income households.

Read blog post

New analysis: Three costed policies to help low-income households with the cost of living crisis

Our three costed policies to help households through the cost of living crisis require investment of £6.8billion to prevent severe hardship.

Read blog post

Cost of living: How the energy price cap affects different households

We look at how the energy price cap affects different households and find that energy bills could jump to £11,000 for larger families

Read blog post

Cost of living crisis: Low income families with children set to be £1,683 worse off this winter

Our latest cost of living analysis uses administrative data to forecast the impact of rising costs for low-income households

Read blog post

On Target: Protecting vulnerable households from the inflation crisis

The Centre for Social Justice is calling for a 13.3% increase to Universal Credit, to rise by a further 8.5% in January, based on new analysis by Policy in Practice.

Read report

Help for households struggling to afford energy bills

Over £15 billion of existing benefits and support is unclaimed by households every year. We strongly encourage people to use a free benefits calculator such as the Better Off Calculator to ensure they’re claiming all the support they’re eligible for. Households can also contact their energy supplier and local Citizens Advice for help.


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