Britain’s mounting cost of living crisis is set to cost households more than £300 each in soaring energy bills next year as the nation’s poorest families take the biggest hit, new forecasts show.
The Centre for Economic and Business Research’s figures underline the prospect of months of financial pressure for consumers, as the Bank of England warns of inflation surging to decade highs above 4pc and ministers ready tax raids on millions from next April.
The regulator Ofgem’s planned 12pc rise in the energy price cap next month for 15 million standard variable tariff customers – as well as a likely further jump of at least 14pc next April after record gas prices – is likely to slice at around £315 a year or 2.5pc of the average household’s disposable income, the consultant said.
Its forecasts for The Telegraph also show the lowest income households are expected to pay an extra £258 a year, but a much bigger share of disposable income at 16pc. While the richest fifth will pay more at £368, the rise accounts for less than 1pc of their disposable incomes.
Previous CEBR research also shows more than half of the bottom fifth are on variable tariffs rather than fixed rate deals, leaving them more exposed to immediate price hikes.
The rising energy bills come weeks after the Treasury launched a £36bn tax raid on businesses and households to pay for the NHS and social care. Council tax bills will also rise from April, while workers will also pay more as tax bands are frozen.
Sam Miley, a economist at the consultant, said: “It is clear that the rise in energy prices is set to impact the poorest households disproportionately, given that essential spending – such as utilities and food – makes up a greater proportion of their income.
“Combining this price growth with some expected downward pressure on incomes, reflecting the upcoming termination of the furlough scheme, the reversal of the Universal Credit uplift, and the hike to National Insurance, further adds to the pressure that the worst-off are set to face.”
The upward pressure on gas and electricity bills has triggered calls from senior Conservatives to respond by slashing VAT on energy bills from 5pc to zero – a move previously banned by European Union rules.
MP Robert Halfon, a campaigner for lower fuel prices, said last year’s temporary VAT cut for the hospitality sector in the Covid crisis set a precedent.
“A real advantage of leaving the EU is that we now control VAT rates, which wasn’t possible in the past. It will make a real difference, it is around £60 per year on average and it is more as the price goes up.
Mr Halfon added that cutting tax “is a much better way – a Conservative way” of helping struggling families “rather than plonking on subsidies”. He said: “If they cannot do it completely, because there are financial problems with £2.2 trillion of debt, they can at least cut VAT for the disadvantaged and lower paid families,” he said.
Darren Jones, chairman of the Business, Energy and Industrial Strategy select committee, said: “The Business Secretary has promised to protect consumers but the Chancellor hasn’t given him the money to do that.”
George Buckley, chief European economist at Nomura, warned that the energy crisis would weigh on the UK’s recovery next year despite almost £200bn in savings built up by households since the beginning of 2020.
“The problem is that not everyone who’s going to be faced with very high energy bills are going to be the people who have saved a load of money,” he warned.
Financial markets are betting on an interest rate rise from the Bank of England as soon as February after its warnings that the Consumer Prices Index could stay above 4pc – double its official 2pc target – until at least April next year.
But the threat of 1970s-style “stagflation” – stagnation caused by inflation – looms large for the economy as Britain is unlikely to match even Threadneedle Street’s lowered growth expectations for the current quarter at 2.1pc.
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