Higher energy costs and how they are putting a strain on lower income households
“Stop being the chess piece, and start being the chess player. It’s time to master the game of money once and for all”- Tony Robbins
Energy costs have risen significantly in recent months, putting a strain on households’ budgets. According to the Office of National Statistics, 66% of adults in the UK revealed that there had been a rise in their cost of living, with higher energy costs being one of the main contributors. Of the adults who disclosed experiencing an increased cost of living to the Opinions and Lifestyle in January 2022, 79% reported higher gas and electricity bills being the culprits.
In October 2021, fuel costs soared substantially after a 12% increase in the Office of Gas and Electricity Markets (Ofgem) energy cap, which restricts how much energy providers can charge their customers on default tariffs (ONS,2022). The increase in energy prices will have a more significant financial toll on low-income households because they are spending more of their income on utility bills, making them more susceptible to fuel poverty. In January 2022, the wholesale price of gas was four times more than the previous year, with huge increases from summer 2021.
The Trades Union Congress, a national trade union, has said that the typical weekly salary is anticipated to increase by 3.75%, and the price cap was raised by 54% in April for gas and electricity; Ofgem decided this. This means that energy prices might eradicate or suppress the salary increase. The government has said that they will assist by paying £21bn to help with bills for those struggling to cope with the increased cost of living but has refused to stop the rise in National Insurance.
The increase in oil and gas also impacts other costs; for instance, the typical petrol prices have peaked at £1.60 litres. In comparison, rail fares rose to their highest level nine years earlier this year, which increased costs by 3.8%.
Furthermore, inflation which is impacted by the adjustments made to prices of goods and services in the UK, surged to the highest it has been in 30 years to 5.5% in January 2022. The bank of England has warned that there could be more to come in the form of rises, with a possible rise of more than 7% this year.
In addition, due to the war in Ukraine, food prices are predicted to peak because Russia and Ukraine usually sell 30% of wheat worldwide.
The cost of natural gas has increased for several reasons, one of those reasons being that reduced reserves of natural gas and supply constraints have contributed to prices soaring. The UK alone imports approximately 50% of gas from the global market, and most properties in England and Wales stay warm using the main gas supply.
Gas has dual-use in the UK, as it is also used to fuel roughly ‘a third of UKs electricity generation’ (ONS,2022). During the winter, some households did not feel the effect of these rises because of the Ofgem price cap, which limits how much energy suppliers can charge their customers.
Unfortunately, 25 energy suppliers have gone bust, and one entered special administration in the summer of 2021, mainly due to significant increases in wholesale energy costs.
While there is a lot happening on the energy surface globally, how can we save on household costs?
Use comparison websites
Comparison websites are handy to use as you can compare between different providers and see if you are getting the best value for money on your current costs, such as energy provider, and if not, you could always switch, though do make sure to read the small print or enquire with your provider to make sure there are no penalty charges for switching.
Download a saving app such as IntelliSaving
IntelliSaving is a FinTech money-saving app that integrates multiple savings and ISA accounts to their platform to make managing finances more manageable. The app’s features are suitable for different saving journeys, such as saving towards a mortgage, retirement, holidays, tax-free savings or rainy days. The app is home to various features such as a digitalised, personalised portfolio of balances, cash deposits, and returns. You can filter accounts by their categories on your portfolio page and add saving products to your watchlist when comparing the best saving rates on the app.
The Intellisaving website has a range of money-saving articles on ‘How to manage a household on a budget?’
Turn off standby appliances and save electricity
Please switch off the lights when you are not in a room and electrical items which are not in use rather than leaving them on standby. Switching appliances off by the plug could save you around £30 per year. You could use plug sockets that can be turned on and off through your phone, to ensure you switch unused appliances off. There is also a cheaper alternative: timer plugs that allow you to schedule when devices should be turned off.
Switch to LED Light bulbs
When it comes to light bulbs, Energy-saving light bulbs are the best option as you can cut down on the cost of your energy bills. LED light bulbs cost roughly £1.71 a year to use. And over time, it could help you save approximately £180 on energy bills compared to non-LED traditional bulbs. Energy-saving bulbs also have a longer shelf life than conventional bulbs.
Find out what help you are entitled to
You could be eligible for grants and benefits if you are of state pension age, have a disability, are unemployed or have a low salary, and have been unable to pay your energy supplier.
Find out what help you are entitled to
Personal Independent Payment is for individuals that need extra financial support for an illness or disability.
Universal credit is for the unemployed or in receipt of a low salary.
“Pension credit” is used to increase your pay packet in retirement
There are also schemes such as local council tax discounts and a Household support fund; you can enquire with your local council to find out more about the scheme.
Households with low incomes may be entitled to assistance with school meals, transport, and uniform through their local education authority.
Wash clothes at lower temperatures
Set your washing machine and dishwasher to a lower temperature or set them to the ‘eco’ setting and try to fill your machine with a full load of clothes during each wash.
Purchase Eco-Friendly alternatives
If an appliance breaks down and needs to be replaced, replace it with an energy-efficient model to save you some extra pennies. There is usually an EU energy-efficiency rating on the appliance when it is eco-friendly.
Energy bills could be increased further in the future, which is hard to imagine given that it is already so hard for households on a low income or no income to survive the current increase in energy costs, but we hope that some of the tips mentioned above can be of some use. We recognise that it may not always be possible to save but having a savings account where you can save what you can and researching new and creative ways of saving on your everyday costs could be key to whether the storm will come out the other side.