Britain’s Big Gas Squeeze to Drag 10% Into Energy Poverty

(Bloomberg) -- Ian Ecclestone tries whatever he can think of to lower his energy bills. He turns off the heat in his Birkenhead house on weekdays, takes “navy showers” with sporadic bursts of hot water and microwaves his meals at work.

It’s still not going to make much difference come April. Ecclestone likely will be among 4 million more people shoved into “energy poverty” when the U.K. regulator raises its cap on the amount suppliers can charge customers. Bills are expected to jump by almost half, propelled by runaway costs for natural gas, and the toll will be significant: 1 in 10 people in the U.K. may not be able to afford consistent heat and electricity.

“I don’t know what I’ll do,” the 46-year-old warehouse worker said, his frustration clear. “I can’t do more to save energy, it will be ridiculous.”

About 2.2 million people already meet the government definition for energy poverty by spending more than 10% of their income on heat and electricity. After regulator Ofgem’s recalculation this week, that category will triple to 6.6 million, according to estimates by the Resolution Foundation think tank.

They’ll include working families, the elderly, the sick, and the unemployed. The Black population will be particularly hard hit, as they spend more of their disposable income on energy than any other ethnic group, according to government data.

Driving the crisis is the price suppliers pay for wholesale gas, already four times higher than a year ago and expected to stay there into next winter. That’s the biggest chunk of a household bill, and there’s not much the government can do about it given tight global supplies and rising geopolitical tensions between Ukraine and Russia, the main provider to Europe.

Exacerbating the stress is a general cost-of-living crisis gripping the nation, with inflation currently at a three-decade high of 5.4% and taxes rising in April to fund health and social care. The government could announce a package of palliative measures as soon as Thursday.

Bank of England policy makers have expressed alarm about rising prices and are widely expected to lift the benchmark lending rate to 0.5% on Thursday, delivering the first back-to-back increases since 2004.

The National Energy Action charity sees tough choices being made even before the ceiling is raised. Families live by candlelight, use ovens to keep warm and, in extreme cases, barbecue food in the sink because they can’t afford the gas.

“There are some very, very desperate coping tactics that people use, which sadly are often ineffective,” said Peter Smith, director of policy at NEA. “They put those people in extreme, extreme danger.”

In the worst circumstances, suppliers cut off customers that are too deep in debt. But before that, companies may offer to install a prepayment meter, which uses a pay-as-you-go card or key that can be topped up in a shop, post office or smartphone app.

About 4.5 million households have these, and they’re covered by the price cap. So when that’s increased, a 10-pound top-up won’t go as far as it does now.

And when there’s no credit on the meter, there’s no power: the fridge stops, the lights go out and the plug-in heater becomes useless.

Regulator Ofgem will publish its new price cap Thursday. The level is set to rise by about 50% to 1,924 pounds starting in April, with even more on the horizon. The next increase in October could reach 2,450 pounds, according to Investec Bank Plc.

“It’s going to feel like a big squeeze for everybody,” Torsten Bell, director of the Resolution Foundation, told lawmakers Jan. 31. “The lived experience of that is going to feel like a catastrophe for lower-income households.”

It already does to Wendy, 53, who lives in a two-bedroom council estate in Islington, a borough in northern London. The 800 pounds she receives in monthly government benefits don’t cover her rent and utility bills, and she uses The Arc food bank nearby.

And when she doesn’t have enough money to top up her prepayment meter, she sits in the cold and dark, piled under blankets.

“It’s really going to get very, very difficult,” said Wendy, who asked to be identified only by her first name. “A lot of people are scared.”

For those whose power can’t be shut off because they have critical medical equipment at home, the financial hole will get deeper. Gary Chenery, 60, suffers from motor neuron disease, a terminal illness attacking his brain and nervous system.

The ex-Fleet Street newspaperman lives in High Barnet, another part of north London, and keeps his oxygen tanks, automatic hospital bed and heat on around the clock. His debt to the gas company went from 800 pounds last month to 1,000 pounds this month, and there’s no end in sight.

“There isn’t a hope of me finding that money,” he said. “It’s not even about making choices, there is no choice.”

©2022 Bloomberg L.P.