Levelling Down: Government Energy Inaction Will Hit the Poorest People and Regions

Levelling DownGovernment Energy Inaction Will Hit the Poorest People and Regions

Spiralling household costs will undermine Boris Johnson’s promises to ‘Red Wall’ voters, reports Thomas Perrett

More than five million households will be plunged deeper into fuel poverty by the recent 54% increase in energy bills announced by energy regulator Ofgem, a new report has found, exacerbated among areas that Boris Johnson pledged to ‘level up’ after the 2019 General Election.

The Resolution Foundation think tank has examined the latest developments in the cost of living crisis, concluding that as real incomes continue to plummet, exacerbated by the highest inflation rates in four decades, the £693 increase in the energy price cap will incur widespread fuel stress, which the foundation defines as a household spending 10% or more of its budget on energy bills.

Figures from the Office for Budget Responsibility (OBR) reflect the grim realities of inflation; real wages have fallen by 1% compared to this time last year as pay rises have been rendered obsolete by soaring prices. Moreover, the New Economics Foundation (NEF) think tank has found that using Bank of England inflation forecasts of over 8%, and controlling for the ongoing impact of the war in Ukraine on commodity prices, 34.2% of the population will be living below a socially acceptable standard as of April 2022.

Chancellor Rishi Sunak’s Spring Statement was widely criticised for insufficiently addressing the impact of inflation on living costs, and for failing to compel oil and gas firms to absorb increased energy costs, instead pushing the burden of rising energy prices onto consumers.

Having argued that Sunak is “completely out of touch with the reality that so many people are facing,” Shadow Chancellor Rachel Reeves has proposed a windfall tax that would allegedly cut energy bills for the poorest by £600, along with a pledge to expand the Warm Homes Discount, which has been removed from 300,000 disabled people due to changes in eligibility rules.

The Resolution Foundation’s report criticised the “universalist approach” that the Chancellor has pursued in mitigating the severity of the cost of living crisis, arguing that council tax rebates, announced in February, which gave £150 to households living in bands A to D, would result in 640,000 families in the three lowest income groups being excluded from the scheme. 

The council tax rebate scheme will also fail to help student households, the report says, who are exempt from paying it, and poorer households living in more expensive areas of the country. By contrast, around half of those in the top income decile would be eligible to receive the rebate, as the Government scheme has erroneously conflated property prices with income levels.

Back in February, the Government also announced a £200 energy bills rebate, intended to reduce the energy price cap to £493, which would still represent an increase of 39%. The Resolution Foundation’s research has already shown that the lowest income households will still spend 10% of their incomes on energy bills even with the £200 rebate, as it will only be payable from October onwards.

The rebate, which will be repaid in £40 instalments from 2023, has attracted criticism from charities and NGOs arguing that more substantive, targeted support for those on lower incomes is needed. Adam Scorer, CEO of fuel poverty charity National Energy Action, told the Guardian: “We needed deep, targeted support for the most vulnerable. We have shallow, broad measures for all. That simply does not work”.

Senior economist at the Resolution Foundation Jonathan Marshall, who co-authored the report, also criticised the £200 rebate, telling Byline Times: “The Government was anticipating the price spike to be quite abrupt… But we will have high energy costs for quite a while. If energy bills stay high, the rebate is not really an optimal solution.”

Marshall also criticised the Chancellor’s Spring Statement, which he argued was “not targeted in the way it needed to have been”. Marshall argued that “while there is money available, it isn’t being targeted at those in need,” adding: “It is households on lower means who will struggle with this most. The measures outlined in the Spring Statement were wide of the mark.”

Even more worryingly, further energy price cap rises are due from October; the Resolution Foundation’s report has estimated that it could plunge 7.5 million families into fuel poverty. The devastating economic fallout from rising energy bills would predictably fall heaviest on the lowest earners, as 80% of families in the lowest income bracket will face fuel stress if the price cap increases, compared with just 2% of the highest earners.

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Exacerbating Regional Inequalities

The rise in energy bills has also exposed the rampant regional inequalities which Prime Minister Boris Johnson pledged to address when his Government took office.

Indeed, it is primarily households with the lowest levels of energy efficiency, disproportionately clustered in areas of the country such as Yorkshire and the midlands, that will face the highest levels of fuel stress if the price cap is raised again. Fuel stress is likely to affect over 40% of households in the north-east of England come October, in comparison with just over 20% of households in the south-east.

Research carried out by the NEF has demonstrated that the north-east, and Yorkshire and the Humber, will have the highest percentage of people living below the Minimum Income Standard (MIS), a metric defined by a family having to choose between essentials.

Compared with the period from 2017 to 2019, the percentage of people living below the MIS has increased by 8.5% in the north east, where a total of 42.5% live under this standard, and by 9.3% in Yorkshire and the Humber, where 40.7% live under it. By contrast, in the south east, the percentage living under the MIS has increased by just 3% to 25.7%.

Strikingly, 48% of British children now live in families living below this subsistence level, up from 40% in 2019. This figure jumps to 96% for children living in families where neither parent works, and 77% for children of single parents – further highlighting the implications of the Government’s failure to up-rate benefits in the Spring Statement.

Moreover, the increase in the energy price cap, accompanied by rising general commodity prices, threatens to outstrip already meagre pay rises in ‘Red Wall’ areas. Back in December 2021, the NEF found that incomes in the north east had risen by less 0.1% since December 2019, compared with 0.2% in the north-west and Merseyside and 0.3% in Yorkshire and the Humber. This stood in stark contrast with the 1.3% increase in disposable incomes in London, and the 1.1% increase in the south-east.

Households in these economically precarious regions are significantly more likely to live in homes with low levels of energy efficiency, indicating that the introduction of low carbon insulation for housing is imperative to reduce the impact of energy bills.

In March 2022, 33 civil society groups including Greenpeace, Friends of the Earth, and Save the Children wrote to Boris Johnson and Business Secretary Kwasi Kwarteng, advocating for a £3.6 billion insulation grant for all households, supplemented by a £4 billion grant to replace gas boilers with heat pumps in homes by 2025.

Marshall told Byline Times that successive governments had failed to increase the fuel efficiency of households across the country. “In 2012, home insulation fell by 90% when the Cameron Government ‘cut the green crap’”, he said. “People in poorer areas will face higher bills than they need to. When you combine this with lower than average salaries, you will see higher levels of fuel stress.”

The Resolution Foundation’s report has highlighted the lasting consequences of rapidly rising energy bills for families on the lowest incomes. The inadequacies of the Spring Statement to up-rate benefits, tax the profits of North Sea oil firms or to tackle flatlining real wages has culminated in widening social and regional inequalities, as the cost of living crisis continues to impoverish vast swathes of the country.