Gas & Electricity Prices – Devastating Increases for Low Income Households

by ukcivilservant

The multidisciplinary competition team at the University of East Anglia has just published a fascinating report into Fairness in UK Retail Energy Markets. Here are some highlights, plus links to further reading.

First off, our median domestic energy spending (as a % of income) is not high by historic standards. This chart (from 1977 to 2014) shows that the anomalous years were from 1992 to 2008 when energy expenditure was relatively low.

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But the above chart – and the blue line in the next one – eliminate the effect of inflation. The orange line – below – shows that energy bills have doubled, in cash terms, since 1992.  No wonder voters have been upset!

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And the poorest have been hardest hit. The highest decile spend around 6.6% of their income on energy; the lowest around 16%. Even small increases in energy bills can devastate their budgeting

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For added emphasis, this next chart shows how the various income deciles spend their money. Energy is absolutely the largest utility cost for poorer households. The rich seem to spend most of their money on transport – presumably commuting, posh cars and weekends away, all of which consume energy in ways not caught by the above charts.

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Comment

The above charts are taken from Chapter 2 of a joint report by UEA”s Centre for Competition Policy and the UK Energy Research Centre. Click here to read/download the report.

The authors politely refrain from describing the reasons why energy prices have risen so fast – which is mainly because of government policies.  This is explained in this web page and, more generally, in  the energy pages of the Understanding Regulation website.

Ofgem are currently designing a price cap for single variable tariffs, much used by less affluent consumers.  I will add news of this to the above-mentioned web pages, when it is announced.

Chapter 3 of the CCP/UKERC report explores the relationship between the regulator Ofgem and the government.  I will summarise this chapter in a separate blog.

Finally, in interpreting the above charts, it is interesting to remember that domestic energy consumption (in kilotons of oil equivalent) has been falling since around 2000 – as shown in this chart (not from the report).  The energy price crisis would have been much worse if this had not happened.

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Martin Stanley

Editor Understanding Regulation

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