Low-income households face 33% rise in costs as energy bills soar...

...versus 14% for high income households, interactive investor research suggests.

• A freeze on energy bills is reportedly among options for tackling soaring energy bills and ii’s research is based on energy price cap effective from 1 October 

Very few are immune from the cost-of-living crisis, but it is the lowest-income households feeling it the most, as research from interactive investor lays bare. 

interactive investor, the UK’s second-largest investment platform for private investors, calculates that low-income households face spending a third (33%) more on household costs, compared to last year, from next month. 

While the nation awaits news on support packages, this is how the numbers are stacking up at the moment, based on the energy price cap effective from October.

Middle-income households could spend a fifth more (20%), and high-earning households are looking at a 14% hike in costs. That’s based on a medium-sized home and is an estimate for the average household using official data.

interactive investor analysed data from Ofgem’s latest energy price cap effective from 1 October, together with the latest ONS Family Spending survey and the latest ONS inflation figures*.

The poorest households living in big homes face a 47% rise in household costs once the 80% hike in the energy price cap takes effect from October. This compares to 26% and 17% for middle- and high-income earners living in a large property, respectively.

The uptick in household costs is mainly driven by the 178% increase in the energy price cap from £1,277 in October 2021 to £3,549 from this October. Food inflation and the rising cost of transport are among the other contributing factors.

For consumers living in a small property, low-income households face a 22% increase in costs, in contrast to 14% for middle-income household and 11% for high-income households.

Sources: ONS family spending survey, ONS inflation figures, Ofgem price cap. Calculations by interactive investor.

Alice Guy, Personal Finance Expert, interactive investor, says: “The poorest households will be hardest hit by crushing energy bills this winter as they spend a larger proportion of their budget on essentials such as energy and food.

“The poorest 10% of households are facing a 33% increase in their household costs, mainly caused by a nearly threefold increase in energy bills since last winter.

“Some poorer families will pay even more than the standard energy price cap. Poor families living in bigger homes are staring down the barrel of a 47% rise in household costs, with energy eating up nearly half their household budget.

“With unaffordable bills, many households are facing a frightening winter. Poorer households have already cut budgets to the bone, and they may turn to drastic measures, such as turning off the heating.

“In contrast, the richest 10% of households will see a 14% increase in their bills. They have more disposable income and can often move money around by reducing other discretionary spending.”

Energy price freeze reprieve?

A freeze on energy bills is reportedly among options for tackling the soaring cost of energy to be presented to the new prime minister this week.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “In a world of spiralling energy costs, ‘just getting by’ could be the new normal this autumn – and that’s for the lucky ones. That leaves less in the kitty for rainy day emergency funds, food, leisure, through to saving for retirement.

“Freezing energy bills might mean that consumers will not have to worry about further increases in the cost of energy per unit for the time being, but it would still leave the poorest households struggling to heat their homes and keep their lights on – pushing more and more into fuel poverty. 

“The eye-watering rise in energy bills are hitting those in lower-income households disproportionately as they spend a higher proportion of their income on utility bills. Many poorer households are on prepaid meter, so they will have to fork out more than those on direct debits.

“The scale of the increase in energy bills is a real shocker for all consumers. For those who have just come off a fixed energy tariff, the uptick in energy bills is astronomical – a lot more than the headline price cap increase for the typical household.

“Consumers are contending with a toxic mix of high living costs, lower wages in real terms and are rapidly running out of options to circumvent these pressures. The challenge on the table for prime minister Liz Truss is to offer meaningful support from this unprecedented crisis and there are no easy answers.”

Notes to editors

* The calculations are based on data from the Office for National Statistic (ONS) latest Family Spending survey*, ONS inflation figures and Ofgem’s latest energy price cap effective from 1 October (£3,549 a year on average for those on default tariffs paying by direct debit). This does not take into account energy efficiency ratings among different properties. ONS Family spending in the UK: April 2020 to March 2021.