After the food shortages and fuel ‘crises’, the newspapers have barely had time to draw breath before the next crisis has reared its ugly head – energy bills are rising to astronomical levels, and ten smaller energy firms (like Igloo and Avro) have already gone bust under rising financial pressure. The reason? The wholesale price of gas has been rising to record levels on the energy market over the past few weeks, and in the end rising prices always come down the food chain, back to the consumer. And with the recent withdrawal of the extra £20 a week for those receiving universal credit, a perfect storm of financial pressure is brewing; many families will face the prospect of deciding whether to heat their homes or eat this winter.
A rise in the price of gas has hit smaller energy companies especially hard in the short term, as they – unlike bigger energy companies with more capital – do not buy their gas months in advance, which means they are at the mercy of the fluctuating market. But why did these companies not just increase their prices and offload this cost onto the consumer? The UK has an energy price cap, regulated by Ofgem, which means that energy companies can only charge households a certain amount relative to their energy usage.
This regulation has insulated the average consumer from large increases in their energy bills so far, but for all energy consumers, the worst is yet to come. Speaking on the Today programme on BBC Radio 4, a representative from Ofgem warned that energy price increases would affect consumers in the longer term, with a proposed increase to the energy price cap set to be introduced in April. Some estimates suggest that consumers could see up to an extra £800 on their average energy bill. Bigger energy companies like EON and British Gas argue that this needs to happen quickly, as taking on the added demand of customers from bankrupt companies will put a strain on companies and consumers finances alike as winter draws in – there’s certainly no chance of getting a bargain deal in the current climate.
Energy companies have requested financial support from the government, much like that given to bail out banks during the 2008 financial crash, but cash has not been forthcoming this time. With the government announcing a gas levy to be imposed on energy companies in a bid to entice them to use renewable energy sources, gas-guzzling industries like steel warn of serious financial and manufacturing issues in the coming months. Despite this, during the Conservative Party Conference last week, the Prime Minister and Chancellor spoke of how the government aims to build a highly-skilled employment market to improve the value of real wages and workers’ standard of living.
However, this is not going to help students pay their energy bills in the short term, seeing as many are not working at all and those in part-time work are unlikely to see the benefit of rising wages.
So, what is likely to happen to the energy bills of students? In private accommodation, like student housing, if energy bills are not included with rent, then it is likely that bills will increase in the short term. This is especially true if your energy provider, unfortunately, goes bust, resulting in a switch to a different provider with a likely higher tariff.
An overreliance on gas to generate electricity has in part led to this crisis point, which is why student energy bills will be hit hard, regardless of the absence of a gas boiler or stove in a student house. With the proposed rise in the energy price cap next year, the longer-term impacts are also likely to be felt by students moving into college accommodation where bills are included in rent, as the university will not be able to procure energy at the same lower price as previously, like everyone else. In short, students will likely see their energy bills going up soon, as the cost of living rises as well. This is a clear sign to stock up on jumpers.
Image: Ivan Radic via Wikimedia Commons