This year will go down as a year of hardship for so many people: 2022 brought spiking energy bills and record levels of inflation that have eroded people’s incomes. But as former prime minister Gordon Brown warns in today’s Observer, next year will be harder still and hardest for low-income households, including less affluent pensioners, low-paid parents and their children and people with disabilities.
This is the result of Britain’s recession, forecast by the Bank of England to last two years, and energy bills that are forecast to continue to rise as government support with energy costs falls. From next April, the government’s energy price guarantee will become less generous, capping the average bill at £3,000 rather than £2,500 a year and the universal £400 worth of support that was paid to all households in winter 2022 will be withdrawn. To offset this reduction, the government has increased the level of targeted support at those in receipt of means-tested benefits: all pensioners and those receiving disability benefits will get £300 and £150, as they did last year, and people on means-tested benefits will get a one-off payment of £900, up from £650 last year. So there is less support to go round, but it is more targeted on low-income households.
But as Brown highlights in new analysis, this will still leave extraordinarily high numbers of vulnerable families exposed to fuel poverty, defined as households paying 10% or more of their income on energy bills each year. Seven in 10 pensioners are forecast to be experiencing fuel poverty based on this measure by next April, rising to 96% of lone parent families with two or more children and 85% of couples with three or more children. Almost 4 million families will need to be spending just under a third of their income on energy to keep warm, a completely unsustainable proposition given the costs of housing, food and other essentials.
The reason is that, despite the government making efforts to make the smaller amount of support on offer more targeted towards poorer households, it is a very imprecise way of getting support to the households that need it the most, and leaves out many of the hardest-up families. Four in 10 of the poorest fifth of households are not in receipt of means-tested benefits, so do not even qualify for the £900 top-up. Using means-tested benefits as a passport for this payment means that if a family goes over the benefits threshold by just £1, they will lose the £900 in its entirety. Last, energy use is higher than average in poorer households that are larger, or where people live in poorly insulated, bad-quality housing – more likely to be the case for people living in poverty in the first place.
The outcome is that, even taking into account the means-tested support package, analysis by the Resolution Foundation shows that half of households in the poorest fifth of the income distribution will still be facing energy bills of more than £1,000 more than they did in 2022. This extra £1,000 is not money they can afford; so many of these individuals are already living in impossible circumstances, facing choices between keeping their homes warm or putting food on the table for their children, forced to rely on food banks because they can’t afford basic essentials. It is the poorest households who face some of the highest prices as well as a result of having to rely on prepaid energy meters and to shop in smaller and more expensive food shops because they have no transport to get to cheaper supermarkets. The Resolution Foundation has estimated that the poorest 10th of households are now facing an effective inflation rate of 12.5%, compared with 9.6% for the richest 10th, the biggest gap in these rates since 2006 when these measures were collected.
Using means-tested benefits as a passport means if a family goes over the benefits threshold by £1, they will lose the £900 in its entirety
The prime minister and chancellor would no doubt argue it is out of their hands; they would claim to have done as much as they can given the grim economic circumstances the country faces and the crisis in energy prices caused by Russia’s war in Ukraine. This is not credible for three reasons. First, successive Conservative chancellors have eroded the value of the financial safety net available for low-paid parents and disabled people, by cutting tax credits and benefits over the last decade while giving away expensive tax cuts that have disproportionately benefitted better-off households. This has made low-income households much less financially resilient over the long term. Second, as Brown argues, there are obvious sources of extra revenue available to the chancellor, Jeremy Hunt, including taxing non-doms and increased taxes on bankers’ bonuses, whose receipts could be channelled as extra support towards the poorest households next year. Third, Britain’s dreadful growth prospects are not just a product of global headwinds, but of 12 years of Conservative economic policy: a failure to invest in productivity-boosting measures such as skills and infrastructure and the ideological pursuit of the hardest form of Brexit that has left Britain – and everyone who lives in it – considerably poorer for the long term.
The situation facing Britain’s least affluent families next year is an economic emergency. Unless the government intervenes swiftly to increase levels of support from next April, more children, pensioners and people with disabilities will be living in abject fuel poverty, in freezing homes, with long-term consequences for their health. The government must heed Gordon Brown’s warning, and act.