The cost of living crisis was significantly caused by the spike in the cost of oil and gas, following Russia’s invasion of Ukraine. Due to an over-reliance on gas, UK households suffered the worst price increases in Western Europe. This briefing sets out how the solutions to the cost of living crisis will also help to tackle the climate crisis.
Key statistics at a glance
- Even though gas only counts for 40% of energy generation in the UK, it sets the market price for electricity 97% of the time.
- The average household’s energy bill will increase by 10% from 1 October to £1,717 a year. This represents a 65% increase on prices before the energy bills crisis started.
- UK housing stock is the oldest in Europe, meaning consumers are using energy which is wasted through inefficient buildings.
Energy efficiency
The UK has the oldest housing stock in Europe, resulting in homes that are inefficient with their energy usage. Unless upgraded, old homes lack measures that would keep them warmer in the winter and cooler in the summer. Simple solutions like insulation and better quality windows and doors would prevent energy leakage, reducing overall energy consumption and lower bills for consumers.
The Government has committed to ensure all private rented homes meet EPC band C by 2030, and existing commitments require all fuel poor homes to have met the same standard by 2030. To achieve this the Government has committed £6.6bn of new funding, doubling the previous Government’s level of investment, to be delivered over the course of this parliament, on top of existing funding for the ECO energy efficiency scheme of £5bn to 2030.
While a good start, this level of funding is lower than what is needed. Previous commitments recognised that £6bn would be required every year for the next decade to deliver a national retrofit program. The Government should provide an additional £3bn per year this parliament and work with the sector to scale up supply chains and training of installers so they can increase the level of funding to the necessary levels as a priority, in order to upgrade the UK’s old homes and provide lower bills for good.
Introducing a social tariff
A social tariff is a discounted price for an essential service, usually cheaper than the lowest-price market offer. Social tariffs currently exist for broadband and mobile phone packages for customers in receipt of certain state benefits. Water companies also offer social tariffs, although the level at which they are set is not standardised, meaning different companies offer different rates.
As energy prices have increased rapidly over the past few years, households on lower incomes have been outpriced. By March 2024 energy bill debt surpassed £3 billion with 2.3 million households owing over £1,200 on average. Due to the recent Government decision to scrap Winter Fuel Payments (WFP), up to 2 million pensioners could face fuel poverty this winter. This decision should be reversed until sufficient support is in place for those that need it. Specifically, an emergency package of support is required for those most in need, in light of the planned energy price cap increase by 10% this October.
Alongside this, the Government must move at pace to deliver a lasting solution to this crisis by introducing a social tariff for energy, to avoid the need for emergency measures every winter. The Government should explore funding the social tariff at least in part through making energy suppliers pay, and through increasing taxes on the super-rich.
Rapid renewable rollout
The UK still uses gas for 85% of home heating and 40% of electricity generation – this overreliance on gas leaves the UK particularly vulnerable to price shocks, leading the IMF to conclude that the UK was the country worst hit by the gas crisis in Western Europe. Boosting electricity generation through homegrown renewable energy, will aid energy security and stable pricing which is not beholden to a volatile international market shaped by geopolitics, as is the case with fossil fuels. To ensure cheaper energy unit costs associated with renewable energy generation are passed to consumers, the current price setting mechanism accentuates the need to roll out renewables and storage at pace.
The Government should ensure £1.5bn per year is provided for future annual renewables auctions so that at least 55GW offshore wind is contracted by 2030; and it should take a proactive approach to strategic planning to fast-track electricity grid upgrades in harmony with nature. Currently the price of gas-generated electricity sets the unit price of all electricity on the UK energy market. Gas unit costs are expected to rise by 13% just as we head into winter this year and households turn their heating on.