UK energy crisis risks squeezing households more than 2008 crash

MORE than half of UK households risk being pushed into energy poverty this winter by soaring bills that threaten suppliers with rising amounts of debt that simply can’t be repaid.

The crisis could have a bigger impact on households than the 2008 financial crisis, according to consultancy Baringa Partners. The bleak warning comes as bills are set to surge roughly 80 per cent from October, just as the arrival of colder weather boosts energy demand.

Winter energy bills are expected to be more than triple what they were a year ago. That will further stretch consumer budgets being hit by a wider cost-of-living crisis that’s stoking fears of a recession and prompting calls for the government to offer more help.

“The impact to society will be higher than the 2008 crash in terms of the impact on households,” said James Cooper, a partner at Baringa. “We’re now moving into territory where a majority of households are placed into debt or a very fragile financial position.”

Average annual energy bills are forecast to exceed £3,500 (S$5,763) from Oct 1, when a new price cap kicks in. That’s more than 11 per cent of a household’s median disposable income, according to the Office of National Statistics.

Energy costs could eventually drain as much as 17 per cent of household income next year if the government doesn’t give more help, based on price-cap estimates from Cornwall Insight.

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Customer debt is already on the rise. People usually in the summer pay down debt built up during winter, when they use more energy. But debts actually increased this summer as energy prices hit records. The situation could get much worse as bills jump in winter.

The Don’t Pay UK campaign has drawn over 110,000 signatures from people vowing not to pay their energy bills in protest. Even those who follow through on the threat may only amount to a small fraction of those who can’t afford to pay, particularly if the winter is a cold one.

Tackling the crisis is a major challenge for the next prime minister, with little chance of new policy until either Liz Truss or Rishi Sunak takes office. The energy industry has urged the government to provide more help, beyond the £400 support pledged for each home.

“The big concern we have at the moment is customers’ inability to afford bill rises,” said Dan Alchin, director of regulation at lobby Energy UK. “There’s a need for government to urgently act on that.”

Helping households by freezing the price cap at the current level for 2 years would require about £100 billion, according to Keith Anderson, chief executive officer of Scottish Power, one of the UK’s biggest residential suppliers.

Customers who don’t pay can be put on a repayment metre or even cut off - a lengthy process because suppliers are required to make big efforts to help people pay what they owe. Some companies simply might not be able to cope with the level of bad debt, leading to them going out of business.

That risk will increase as the price cap rises further next year. There’s a provision in the way regulator Ofgem calculates the cap to support suppliers dealing with bad debt, which could lead to a higher cap and therefore potentially more household debt down the line.

“There’s a risk people can’t pay or won’t pay and that number could grow quite quickly,” RBC Europe analyst John Musk said. “That could have a cascading effect on smaller suppliers that are less well capitalised and they could start going under.” BLOOMBERG