The prime minister recently took aim at the energy price cap, setting out a package of measures intended to ease the cost of living crisis.
Liz Truss’s announcement, however, was quickly overshadowed by the sad news of the death of Queen Elizabeth II.
For 10 days, the country was rightly focused on their collective grief. Now, though, attention has shifted back to rising energy costs as the mercury begins to plummet.
Keep reading for your guide to the latest news on the cost of living crisis and what the prime minister’s measures might mean for you.
A country in mourning but the cost of living crisis continues
As the nation came together to mourn the passing of Britain’s longest-reigning monarch, the global economic outlook remained uncertain.
The latest figures from the Office for National Statistics (ONS) confirm a small drop in UK inflation for the 12 months to August. From the 40-year high of 10.1%, the Consumer Price Index (CPI) has dropped to 9.9%. Reports suggest that the drop is largely due to falling petrol prices.
Despite the CPI decrease, the Bank of England (BoE) still chose to raise the base rate when the committee met on 22 September. The BoE opted to increase the base rate to a 14-year high of 2.25%.
The meeting had been postponed for one week following the news of the Queen’s death.
Before news of the Queen’s ailing health reached parliament, and just two days after Her Majesty asked Liz Truss to form a government, the UK’s new prime minister set out her plan to tackle the cost of living crisis.
A freeze to the energy price cap at double last year’s level
The energy price cap, simply put, is a cap on the price consumers can pay for a single unit of gas and electricity. It is based on the cost to energy firms of supplying the energy we use.
Introduced in 2019, the cap is meant to ensure that consumer prices and supplier costs are aligned while ensuring falls in value are passed onto the customer.
As global economies struggled to recover post-Covid, they have been hit by rising inflation, supply chain crises, and low economic growth in China. Russia’s invasion of Ukraine on 24 February 2022 led to economic sanctions and huge issues for the supply of gas and oil.
These combined factors have forced up the energy cap. It rose by 54% in April, to £1,971. The announced 80% rise due for April would have pushed the average household energy bill to a massive £3,549. In October 2021, by contrast, the cap stood at just £1,277.
The prime minister used her recent announcement to freeze the cap at £2,500 for the next two years.
The cap is frozen around £1,000 lower than it would have been had the 80% increase continued, but approximately £500 higher than it was in April. It is almost double the cap from October 2021.
The support package is expected to cost around £120 billion but some have questioned the targeting of the support being given.
According to the Guardian, the prime minister’s plans will see the UK’s richest 10% receive support worth an average of £4,700, while the poorest 10% receive just £2,200. Whatever your monthly income and outgoings, you might find you need to think more carefully about your energy usage this winter.
5 quick tips for keeping your bill in check
There are plenty of simple ways to cut back on your energy usage. And while they might seem like small differences on their own, combining them all could make a real difference to your energy bills as prices continue to rise.
- Turning your thermostat down by just one degree could cut your bill by 4%, or around £100 for an average household.
- Fitting a water-saving shower head, taking shorter showers, or showering at a lower temperature could all make a big difference over a year.
- Seeking out and covering up draughts – especially in an old house – could help you to keep the thermostat lower.
- Be sure to completely fill the washing machine each time and use a cooler setting. Using an eco-setting on the dishwasher – and washing up by hand – could also help.
- Turning off devices you are not using, rather than keeping them on standby, could save you £28 a year according to the Energy Saving Trust.
At Globe IFA, we can help you and your loved ones to better manage a household budget, possibly freeing up disposable cash to keep the heating on this winter.
While the energy cap is now frozen for two years, inflation is expected to rise in the coming months and is unlikely to return to the BoE’s 2% target until sometime in 2024. The cap is also double its October 2021 level and that will mean some tough choices for poorer households this winter.
Get in touch
If you are worried about the rising cost of living or the effects of the price cap freeze on your finances, contact us now. Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you.
