The UK’s poorest households are expected to see their living costs rise almost twice as much as society’s richest when energy bills rise this autumn, leading economists have warned.
The Institute for Tax Studies (IFS) said the further increase in gas and electricity bills expected in October could lead to average annual inflation rates of up to 14% for the poorest tenth of homes.
Raising the energy price cap to around £ 2,800 is likely to disproportionately affect poorer families because a larger share of their total expenditure goes to energy. The IFS said the poorest tenth of households typically spend nearly three times their budget on gas and electricity compared to the richest tenth.
In stark contrast to a personal inflation rate of 14% for the poorest, the richest tenth could see rates of about 8%, the think tank said. In all households, inflation is likely to reach 10% amid rising energy bills, the highest rate since 1982.
Calls for the government to take urgent measures on the cost of living have risen this week after the head of Ofgem, the energy regulator, told lawmakers that he was about to raise the limit on gas and electricity bills. from consumers to around £ 2,800 in October.
Raising the price cap would increase the average annual bill by more than £ 800, after Ofgem increased it by £ 693 in April to £ 1,971. Chancellor Rishi Sunak is believed to be drafting an energy support package that could be announced as early as Thursday.
“As poorer households spend more of their budgets on gas and electricity, this increase is likely to affect more poorer households,” said Heidi Karjalainen, a research economist at IFS.
As a sign of growing pressure on households, Wednesday’s figures showed that average petrol prices reached a new record high of 170.4 per cent. per liter, more than 129 p. of a liter a year ago. Diesel rose to 181.4p, up from 131.3 a year earlier.
The Resolution Foundation said single payments to the poorest households worth up to £ 15bn were needed to stop the rising energy bills that put millions of families in poverty this winter.
While all households are expected to feel the pressure of rising living costs this year, the focus group warned that poorer families were being the hardest hit as they spend a larger share of their lives. budgets in energy and food bills, the main drivers of the inflationary shock that devastated Britain. .
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He said the scale of the crisis meant that the number of households with severe fuel stress – so families are spending £ 1 out of £ 5 of their budget on energy bills – could rise by 325,000. in England last winter to 1.9 million this year. unless significant objective support is provided.
Karl Handscomb, a senior economist at the Resolution Foundation, said Sunak should ignore calls for support by lowering income tax and VAT, and instead focus on increasing the value of benefits. “That would be the best way to help millions of families in what will be a very harsh winter,” he said.
“The scale and depth of the cost of living crisis require specific and unprecedented support of up to £ 15 billion. Offering that support is far from simple, but it can be done.”