UK faces social ‘catastrophe’ and surge in poverty after energy bills soar 80%

The government has been warned people will die unless it takes urgent action to shield families from massive energy price hikes after it was finally confirmed that bills would jump more than 80 per cent in October and experts said the price cap could surge to £10,000 a year by April.

Regulator Ofgem revealed the cap, which is supposed to protect consumers from unfair price increases, would rise to £3,549 per year for an average household – more than three times last winter’s level.

The eye-watering increase will leave some 8.9 million households in fuel poverty, charity bosses said, with a “real risk” that children will go hungry as Britain’s poorest see almost half of their incomes taken up by gas and electricity.

Ministers have so far failed to answer calls for more financial help, although Boris Johnson finally acknowledged on Friday that his successor as prime minister would “plainly” have to offer more cash.

Chancellor Nadhim Zahawi told people to cut down on their energy consumption to reduce their bills and insisted he was working “flat out” to develop support measures.

Alarmingly, worse is yet to come after frenzied trading in energy markets has seen wholesale prices double in the past month.

At current market prices, the energy price cap is on course to exceed £5,500 a year by January and £7,000 by April as analysts warned the cost of gas could go higher still if Russia further squeezes vital supplies into Europe.

That would deepen the problems faced by millions of low-income families who will already struggle to afford adequate heating and power through the colder months.

Even at the October cap level, poorer households will see their incomes “wiped out”, the Joseph Rowntree Foundation said.

The charity calculated that an average low-income family will have to pay four and a half times more for energy in 2023/24 compared to last year while single parents will hand over almost two-thirds of their income after housing costs. Energy bills for low-income adults will exceed 120 per cent of their income.

“This is a truly impossible situation leaving them having to cut down on energy use even to pay their bill and having no money whatsoever left over for food or other essentials,” the JRF said.

Middle-income families will see almost a fifth of their earnings go on gas and electricity, prompting fears that businesses will collapse as people tighten their belts and spend less on non-essential items.

Peter Matejic, chief analyst at the Joseph Rowntree Foundation, said Ofgem’s “extraordinary announcement” had made the government’s cost-of-living support package obsolete.

“With the price cap very likely to increase significantly and forecast to remain high well throughout next year, our analysis shows it is sheer fantasy to think struggling families can pay these stratospheric energy bills without further government intervention on a significant scale.”

Consumer champion Martin Lewis wrote in response to the cap announcement: “More help is desperately needed for poorest or people will die this winter due to unaffordability of an 80 per cent so far energy price cap hike.”

He added that the situation is a “genuine social and financial catastrophe that is putting lives at risk”.

Sara Ogilvie, policy director at Child Poverty Action Group, said Friday’s announcement would “terrify” many families who will find it practically impossible to escape poverty.

“We know that families with children spend 30 per cent more on energy bills than households without kids – yet government has completely failed to recognise the extra costs facing households with children,” Ms Ogilvie said.

“The next Prime Minister will be on a collision course with reality unless they increase support to reflect the scale of need, and uprate benefits in line with inflation.”

Energy experts said there is almost no limit to how high energy prices could now go as countries across Europe face up to the reality of shortages, rationing and blackouts this winter.

Tony Jordan, an energy expert at consultancy Auxilione, said many forecasts for the price cap are likely to prove to be too optimistic because they take an average of prices over the past days or weeks.

Currently, gas prices are rising upwards so fast – sometimes 10 per cent per day – that such forecasts prove to be already out of date by the time they are published.

“If you closed the price cap calculation for January today it would be £7,200 a year. Could it go to £10,000? It’s certainly possible,” he said.

A host of problems are combining at once to push prices to new records almost daily, including planned outages at Norwegian gas fields, maintenance on the Nord Stream I pipeline from Russia into Europe and delays to the Freeport liquefied natural gas terminal in the US, which isn’t expected to come online for another six weeks.

Mr Jordan added: “What would it take for the market to go back to normal? The only thing is a complete ending of sanctions on Russia, going back with the begging bowl, turning everything back on including probably the Nord Stream 2 pipeline.

“Then you would be swimming in gas rather than looking for the odd therm here and there that doesn’t exist. I can’t see that happening.

“There isn’t enough gas from America to replace the Russian piped gas. Yes, the market may come off a bit, but there is no reason for it to fall at the moment.”

Caroline Bain, chief commodities expert at Capital Economics said the UK was “walking an absolute tightrope this winter”.

“If we get some cold spells, or a further tightening of Europe is going to have to look at rationing.

“As an economist, it is difficult to forecast because this is completely uncharted territory. It’s unlike anything we have seen before. The oil shocks of the 1970s were nothing on the scale of what we are seeing with gas now”, Ms Bain said.

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