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Poor face choice to ‘heat or eat’ as British energy price surge looms

Helen Fisher has been advising Liverpudlians for more than a decade, helping anyone in dire financial straits – from the disabled and mentally ill to the purely out of pocket – survive the winters.

But the 66-year-old retired teacher, now energy champion at the Liverpool Community Advice charity in north-west England, cannot remember a more worrying time.

With most of the government measures that alleviated hardship during the pandemic gone, evictions have picked up, bailiffs are collecting council tax arrears, energy companies are raising bills and food prices are soaring.

Charities across the UK say they have seen growing numbers of people turn to food banks as they struggle to pay essential bills, with some unable to run a freezer or washing machine, let alone heat their home. This is even before Britain’s energy regulator, Ofgem, announces a rise in the cap on energy prices on February 7 that is likely to send household bills up by more than 50 per cent from April.

The strains are acute but far from unique in Liverpool, a city that harbors some of the highest levels of deprivation in England. “It’s not just that it’s going to happen at Easter. It’s happening now, ”Fisher said.

The energy price cap rose by 12 per cent in October but some suppliers have been encouraging people to sign up for much more expensive fixed tariffs, or increasing direct debits based on estimates of what a client will use in the next six months, Fisher said.

Among those she has helped in recent weeks are a retired navy sailor who was bedding down at 5pm in a coat because he could not afford to light or heat his home and a blind pensioner who had been moved from one bankrupt energy supplier to another while he was in hospital. “The first he knew something was wrong was when his bank would not pay a direct debit because he had insufficient funds.”

Chart showing real wages look set to fall for most of 2022;  Annual growth in average weekly earnings (regular pay) and CPI inflation, projections using OBR / BoE forecasts (%)

While all UK households are feeling the squeeze of rising living costs, the very poorest – those reliant entirely on benefits – are among those seeing the biggest fall in their purchasing power.

Average wages are lagging prices: the latest official data put annual growth in earnings at 3.8 per cent, while inflation is expected to exceed 6 per cent by the spring. But some low wage workers will see a bigger pay rise, with the minimum wage due to increase by 6.6 per cent in April, while changes to the benefits system allow them to keep more of their take-home pay.

In contrast, those unable to work – due to ill health, disability, old age or caring duties – will see their benefits rise in April by just 3.1 per cent, an annual uprating determined by the inflation rate last September.

This group already took a big income hit last autumn, when the government withdrew the £ 20 weekly uplift to the basic rate of universal credit benefits that was put in place at the start of the pandemic.

Nicola Duffy, energy and consumer team leader for the charity Citizens Advice in Newcastle, said the removal of the £ 20 uplift, which occurred just as inflation began to rise sharply, had been the “tipping point” for many people in her area, who were unable to offset it by working longer.

Line chart of Estimated average share of unemployment benefits spent on energy * showing Energy bills as a proportion of benefit levels will hit a multi-decade high after price cap rises

Citizens Advice estimates that a single adult on benefits, subsisting on the standard monthly allowance of £ 325, could be spending a third of their income on energy when bills rise in April.

“You can not budget your way out of that situation. There’s no wriggle room, ”Duffy said.

Yet many of the policy measures under discussion as ways to lessen the hit to households would be of little immediate use to those most in need.

The government indicated at the weekend that it was considering ways to extend the scope and generosity of three existing schemes that help pensioners and those on low incomes with their energy bills: the £ 140 annual warm homes discount, the winter fuel payment of up to £ 300, and the cold weather payment of £ 25 a week when temperatures fall below 0C.

However, Mike Brewer, chief economist at the Resolution Foundation, said changes to any of these schemes could be in place only for next winter. In the case of the warm homes discount – currently administered by energy companies and paid for through higher bills for other customers – it would probably require reform to transfer the cost to taxpayers.

A pawnbroker in Liverpool; some households are already running into debt © Jon Super / FT

The government has rejected demands by Tory MPs to postpone the planned national insurance rise – which would have helped only those in work. Alfie Stirling, chief economist at the New Economics Foundation, a think-tank, said another proposal – cutting value added tax on energy bills – would spread help thinly, with the main gains for richer households.

“By far the most effective way of quickly reaching those who need support is through means-tested benefits,” Stirling said – adding that given the recent decision to let the £ 20 uplift lapse, it was also “the least likely”.

While ministers weigh the options, some households are already running into debt. Almost one in eight people said they were using more credit than usual in January because of rising living costs, according to a recent Office for National Statistics survey that matches Bank of England lending data.

Ramsdens, the listed pawnbroker, saw many customers redeem pledges at the start of the pandemic – but told investors this month that it expected its loan book to grow this year.

Column chart of Drop in money available for discretionary spending by income decile (%) showing Energy price rises will hit poor family budgets very hard

Meanwhile, workers on the front line of Liverpool’s cost of living crisis are at a loss as to how to help.

Fisher said that nine months ago she was doing price comparisons to help people switch to cheaper energy deals. Now there are no cheaper options. “We really do not know what we can do to help people because they are going to have to pay these bills and they have not got any money to pay them.”

Sue Robinson: ‘At one time we would go to people and advise them to make a saving, but if you can not cover your bills or food, what can you do?’ © Jon Super / FT

At the Kensington Fields Community Association in one of the poorer inner city areas of Liverpool, Sue Robinson said many people were already facing a dilemma over whether to “heat or eat”.

The center offers members a range of 10 food items, including cereals, meats and tinned foods, for £ 3.50 a week. Robinson is fretting now not because the numbers queuing are high, but because there have been some ominous recent drops in attendance.

“£ 3.50 is a lot of money if you have not got it,” she said. “At one time we would go to people and advise them to make a saving, but if you can not cover your bills or food, what can you do?”

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