The number of UK households that will be affected by “fuel stress” is set to treble to 6.3 million when the energy price cap comes into effect on 1 April.
Fuel stress, or fuel poverty, is the term used when people spend at least 10% of their family budgets on energy bills. It is a general indicator of finding energy bills unaffordable.
According to new research published by the Resolution Foundation on Monday, fuel stress is currently 9% but is expected to skyrocket to 27% as a result of the energy price cap climbing by more than 50% on the back of rising gas prices.
Ofgem is set to announce the new price cap level on 7 February, which is expected to be lifted to around £2,000 (£2,736).
Levels of fuel stress are set to be highest in the North East and the West Midlands at 33% and 32% respectively, among pensioner households 38%, among those in local authority housing 35%, and among those in poorly insulated homes (69% of families in homes with an EPC F-rating).
“The sheer scale of energy bill increases mean that fuel stress will no longer be confined to the poorest households, but low- and middle-income families will find it hardest to cope as they spend a far greater share of their family budgets on these essentials,” the Foundation said.
The report added that the UK government is considering ways to mitigate rising energy bills, and should target support at lower income households.
It called on ministers to support lower-income families through the benefits system, with a faster-than-currently-planned uprating of benefits in April. Benefits are at the moment set to rise by 3.1%.
Alternatively, an additional payment based on the Warm Homes Discount (WHD) could be pursued, it said.
The Foundation added that the reforms should include making the WHD:
Bigger, by increasing the £140 payment by at least £300;
Broader, by widening eligibility to all families in receipt of pension credit or working age benefits (8.5 million families in total) and making payments automatic;
Timelier, the extra support should be delivered via an additional bill discount this spring, following the normal winter round; and,
Taxpayer funded, by funding the payments through general taxation (at a cost of £2.bn) rather than through further increases in everyone else’s energy bills.
This would cut the number of households living in fuel stress by around five percentage points – equivalent to over one million families.
“The government can take action by targeting support at lower income households via benefits or a bigger and broader version of the Warm Homes Discount. They should also temporarily transfer the cost of environmental levies onto general taxation, as well as spreading the cost of supplier failure over three years,” Jonny Marshall, senior economist at the Resolution Foundation, said.
“While not cheap at £7.3bn, this plan is affordable, and by cutting bills by up to £545 would help prevent the upcoming rise in energy bills turning into a cost of living catastrophe for millions of families.”
Watch: How to prevent getting into debt