Why is the UK facing an energy crisis and how do we cope with it?
Posted on April 21, 2022
What to expect in the coming months, and what you can do to manage the costs
Why is the UK facing a national energy crisis?
The UK’s energy crisis deepened last week after gas market prices surpassed the record highs set in October to reach a new all-time high of £4.50 per therm, about nine times higher than this time last year.
The latest gas price spike was ignited by concerns over Russia’s gas exports to western Europe, but further hikes are still possible this winter if supplies are disrupted or a cold snap boosts demand for gas heating.
The new record has fuelled concerns that household energy bills will continue to rise and that households will be forced to shoulder the cost of more energy suppliers going bust which is already nearing £2bn. Rising energy costs are also likely to spell trouble for factories and businesses, and contribute to cost inflation across the UK economy.
Energy bosses have met the government for emergency talks and have described the latest hikes as a “national crisis” and an “enormous crisis for 2022”.
How long will energy bills keep rising?
Energy bills are expected to keep rising at least until 2023, according to energy bosses. There is no sign that energy market prices will begin to fall and the cost of failed energy suppliers – which is paid through energy bills – is expected to continue to rise.
Household bills reached a record high in October after the price cap, set by the industry regulator, Ofgem, reached an average of £1,277 a year for a dual fuel bill. The price cap is expected to rise by 50% when Ofgem recalculates its level in April, and will probably climb above the £2,000 mark by the end of the year.
The bill hike is likely to plunge millions of households into fuel poverty and cause struggling small businesses to go bust. For large energy users, such as manufacturers, the record gas prices could lead to reduced working hours or lay-offs to help manage their costs.
What can the government do about it?
The government can’t do much about surging global energy markets, but senior energy industry leaders have set out a string of options to help contain the crisis.
Energy bosses have suggested that the Treasury could cut bills by 5% by waiving the VAT rate on gas and electricity, or moving the policy levies paid for through bills into general taxation. The Labour party has argued that the higher VAT revenues already paid this winter through energy bills could more than offset the impact of these proposals on the government’s coffers. But the Treasury has disputed this.
Others, including Ecotricity founder Dale Vince, have argued that the Treasury could raise the funds needed to subsidise energy bills through a windfall tax on North Sea gas producers which are due to make record profits from the gas crisis.
Finally, government officials are reportedly considering making loans of up to £20bn available to energy companies to cover the cost of rising market prices which could be paid back over years, according to the Daily Telegraph. The scheme would help companies weather the crisis without passing on bill hikes in the short term.
Kwasi Kwarteng, the business secretary, met energy bosses for emergency talks on Monday but failed to reach a resolution.
What can I do to keep my bills down?
Before the crisis hit the answer to this would always have been to shop around and make sure that you were on the best tariff, but now it’s wise to stay put – this is because most of the deals being advertised are expensive ones. The price cap means that if you are on a standard variable tariff you will be better off than if you move.
Instead you have to focus on consumption, and see if there are ways you can cut how much you use. Some of the best ways to do this cost money, but will be worth the investment if prices stay high. Insulating your home is important, as that means you won’t be wasting money on heating: fill cracks around doors and windows and between floorboards, buy draught excluders for any chimneys and for doors, make sure your loft, if you have one, is insulated. The Energy Saving Trust says insulating a loft will typically cost £300 for a semi-detached house and shave £165 a year off bills.
When you replace products, check the energy ratings and buy the best you can afford – or, if it’s a tumble dryer, ditch it and use a clothes airer.
There are things you can do for free – for example, switching off lights when you leave a room, putting on another jumper and turning down the heating, bleeding radiators and more. Limiting time in the shower to four minutes each could save a typical household £45 a year, according to the Energy Saving Trust.
Installing solar panels or an air source heat pump will be a bigger job and involve more initial outlay but should cut your bills.
What help can I get with my bills?
There are several places to source help with your bills. The government offers several schemes: the warm home discount for people on low incomes offers a £140 discount on electricity bills, the winter fuel payment is available to people born on or before 26 September 1955 and automatically gives you up to £300 a year, and cold weather payments are available to people on benefits when the average temperature drops below zero.
Suppliers have hardship schemes for those in debt – ask yours, and also check the British Gas Energy Trust as its scheme is open to all. You can find out about local grant schemes at simpleenergyadvice.org.uk/grants.
If you are not on a low income but have been told to work from home this year, make sure you have claimed tax relief for doing so as this will help towards your bills. It’s not an option if your employer has been giving you cash towards costs, but otherwise it is worth £62.40 to a basic rate taxpayer and £124.80 to a higher rate taxpayer. It takes minutes to claim, and you can get the full year’s rebate if you have done just one day at home since April.
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