THE REAL RISE IN FUEL BILLS

Electricity and gas suppliers are telling their customers how their bills will change from 1 April. And it is coming as a great shock to many.

The April rise is headlined as 54% - for every £100 you spend now you will spend £154 from April. The annual bill will jump by £693 pushing annual costs from £1277 a year to £1971 a year (they don't add up because of rounding). But these figures are averages and most people will have a different experience.

These increases are rises in the cap. Anyone who paid below the cap and now pays the full new cap will face a much steeper rise. That is particularly true of those coming off a one or two year deal with prices fixed one or two years ago. 

To understand how your bill will change you need to look at the actual charges. 

We pay twice for our electricity and gas. 

• A standing charge - an annual fee just for being connected which is collected at so much per day. 
• A charge for every unit of electricity or gas we use. 

So with two fuels and two different charges there are four different rises to be aware of. These figures are GB average for monthly direct debit customers. 

Default cap tariff from 1 April 2022 (including VAT)

	Standing charge per year			Unit price per kWh
	New price	Old price	Increase	New price	Old price	Increase
Electricity	£165.48	£90.81	£74.67 (+82%)	28.34p	20.80p	7.54p (+36%)
Gas	£99.35	£95.35	£4 (+4%)	7.37p	4.07p	3.3p (+82%)

Electricity: The average standing charge is rising from £90.81 to £165.48 a year. That is an increase of £74.67 or 81%. So even if you use no electricity but have a meter you will pay £3.18 a week for the privilege. That amounts to about one sixth (17%) of a typical bill. If you are a low user the standing charge can easily be a quarter of your bill. You cannot reduce it by putting on a jumper or turning down the thermostat.

The average price for a unit of electricity is rising by 36% from 20.8p to 28.3p. So boiling your kettle or running the dishwasher will cost you just over a third more from April. 

If you only use electricity then your costs from April should rise by around 40% compared with your costs from October 2021. The more you use the lower that percentage rise will be.  

Gas: the gas standing charge is rising very little - by just 4% to £99.35 a year, barely half the new price of the electricity standing charge. 

But the unit rate is increasing by a massive 81% from 4.07p to 7.37p. So your morning shower and your central heating will cost 81% more from April. Remember though that the unit price for gas is much less than electricity. So gas it is still the cheapest way to heat hot water, run central heating, or cook.

Prepay and quarterly

If you pay by prepayment meter or quarterly on the actual bill your charges will generally be higher, though the increase may be less.  

THE CAPPED PRICE

Just about everyone now pays the capped maximum price set by the regulator Ofgem. Competition in the energy market and switching supplier to find a better deal are all but over. 

Competition in the energy market and switching supplier to find a better deal are all but over.

The maximum capped price changes every six months in April and October. And we know what the rise will be on 1 April 2022. But the official figures of a £693 rise to £1971 - 54% higher - are confusing for several reasons. 

Way to pay

First, they assume you pay by monthly direct debit. That is the cheapest way to pay for two reasons. 

• There is less admin for the supplier to do and 
• Suppliers try to ensure customers pay a bit too much so they have surpluses which help with cash flow and investment.

Prepayment meters are more expensive. The headline rises for them are bigger - £708 a year taking your bill to £2017. The percentage rise is 54%. 

The most expensive way to pay is every quarter when you get a bill showing your actual consumption. If you pay that way the average annual bill will increase by £731 to £2100 - a 53% rise. 

These figures are also misleading because they are the annualised cost. In other words they represent what your cost would be if the price cap lasted for a year - which of course it will not, they last for six months. 

What you use

Secondly, the headline figures are worked out for what Ofgem calls a 'typical' household. That is one which uses 12,000 units of gas and 2,900 units of electricity. (A unit of gas or electricity is one kilowatt-hour or kWh. That mean you use one kilowatt for an hour. A kettle uses about 2 kilowatts so if you boil it for half an hour a day in total that is 1 kilowatt-hour or one unit of electricity used.)

If your use is different your price rise will be different. If you only have electricity - as around 4.5 million households do - then your bill will probably increase by less than 54%. If you use very little fuel your bill could well increase by more than 54%. 

Regional variation

Added to all these complexities Great Britain is divided into 14 energy regions, most of which are different from any other way of dividing up the country. Each region has its own prices. Unit costs can be 5% above or below the mean and standing charges for electricity as much as 29% different. The official Ofgem document that sets out the cap has 252 separate boxes to hold all these different prices. 

WHY ARE PRICES RISING?

Unit prices

Most people know that the price of gas has risen strongly over the last year. And now Russia has gone to war with Ukraine that may well get worse. So the next increase in October 2022 may be very high as well.  

The UK of course is surrounded by large gas fields in the North Sea. But the firms that extract that charge the world market price. As that rises we pay more and the firms like Shell and BP make bumper profits.

A lot of our electricity is generated by burning gas. So the price of that is rising too. We do have large wind farms and a lot of solar panels. But the electricity they produce is expensive - not least because to get them built the Government offered premium prices or subsidies to the firms that invested in them. 

we are stuck with world prices for gas and electricity

For now, we are stuck with world prices for gas and electricity. As demand rises and supply does not follow the basic law of economics means that prices will increase.

The standing charge

The electricity standing charge is going up hugely - by £75 a year on average a rise of 82%. This charge used to cover just the fixed costs of providing the wires and pipes to our home, maintaining them, and reading our meters. But not any more. The electricity standing charge in particular has many other costs added onto it. It includes a share of what are called 'policy costs'. These are levied on us to cover the extra cost to energy firms of delivering a greener future. The cost of the smart meter programme for example adds £18 to the average capped bill, for example. The Government makes energy firms do these green things and the cost is mainly added to the electricity standing charge. 

This year at least £34 of the electricity standing charge is to cover some of the cost of reimbursing the big energy suppliers for taking over the customers of the 27 small firms that went bust in 2021. Worse is to come. In Autumn 2022 there will be a £200 discount on every electricity bill. The Government has lent the industry over £5 billion to make those discounts. But that money has to be repaid and from April 2023 £40 a year will be added to the electricity standing charge to collect that repayment from customers. 

ECONOMISING

This blogpost is not the place for more than a few brief hints about cutting your use of electricity and gas. 

Switch off lights, wear an extra jumper, turn down the thermostat, dry clothes in the air, use the dishwasher only when it is full. Remember that any device that uses electricity to heat something up is expensive to run. So only put enough water in the kettle for the pot of tea you are making. Electronic items use very little electricity but turn them off too when you can. 

any device that uses electricity to heat something up is expensive to run

Gas boilers are the cheapest way to heat water up for washing and central heating. So use gas where you can. But keep radiators turned down and shorten your shower. Baths use much more water so more expensive.

Keep windows shut. Consider draughtproofing, lagging, loft insulation, better fitting doors and double-glazed windows. They can all be expensive to do. But in the long term will save you money. 

High energy costs will be with us for a very long time.

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27 February 2022.

TRIPLE LOCK RISE AFFORDABLE

A report by the Government Actuary published on 17 January shows that the Government could have kept the triple lock and increased the state pension by 8.3% in April without serious damage to the National Insurance Fund in the next five years.

Figures in the report show that if the Government had raised the basic and new state pensions by 8.3% in line with earnings instead of prices the surplus in the National Insurance Fund would still have been more than £50 billion in 2022/23 and remained above £50 billion in 2026/27. That is more than double the surplus needed by the Fund to operate safely. 

The Government Actuary publishes a report each year into the cost of uprating benefits in April. It calculates the effect on the National Insurance Fund of the uprating and the surplus left in the Fund at the end of each tax year until 2026/27. This year's uprating in April 2022 will raise the state pension and other benefits by 3.1%. But the Actuary also looked at the effect of raising the basic and new state pension in line with earnings which had grown by 8.3%. 

Under the triple lock promise in the Conservative Manifesto the basic and new state pensions are increased by the rise in prices or earnings whichever is higher, There is a minimum increase of 2.5% if both are below that figure. In October 2021 official statistics showed that prices rose by 3.1% in September and earnings by 8.3% in May to July. Those are the figurs used to uprate benefits and pensions the following April. 

Under the triple lock promise in the Conservative Manifesto the earnings figure of 8.3% should have been used to increase the basic and new state pensions in April 2022. Instead the Govenment passed a law so that the state pension rose in April in line with the 3.1% rise in prices not the 8.3% increase in wages. That decision was criticised at the time and that has grown now the Bank of England predicts price inflation to be 7.25% in April.

The Actuary's report reveals that under the Govenment's plans the surplus in the National Insurance Fund will grow steadily over the next five years from £42.5 billion in 2020/21 to £60.4 billion in 2022/23 reaching £76.2 billion in 2026/27. That will be more than three times the surplus needed to safely operate the Fund without the Teasury stepping in with a grant.

In separate calculations the Actuary finds that if the triple lock promise had been kept the surplus in the Fund would be £25.4 billion lower in 2026/27 - which my calculations show would leave a surplus of £50.8 billion and represent 36.5% of benefit expenditure that year. 

The Actuary's rule is that a surplus of 16.7% is needed to operate the Fund without the need for a Treasury grant. So on these figures the surplus under the triple lock would still be more than double the required level. 

The Department for Work and Pensions told me

"The one-year move to temporarily suspend the Triple Lock ensures fairness for both pensioners and taxpayers...The new legislation is a one-year response to exceptional circumstances of the pandemic and we plan to return the earnings element of the Triple Lock next year."

All figures rounded.  

Paul Lewis

15 February 2022

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