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3 September 2022

Why are energy bills rising faster in the UK compared to Europe?

The energy price crisis is unfolding across Europe – but UK consumers will feel more pain than European ones.

By Nick Ferris

The energy price crisis is expected to push millions of UK households into fuel poverty this winter – though it has been pointed out that prices are rising sharply across Europe too.

But while it’s true that the root causes of the crisis – high oil and gas prices following Russia’s invasion of Ukraine, as well as high inflation – are also causing problems in other countries, data shows that the pinch really is being felt more sharply in the UK than elsewhere.  

The UK's reliance on the burning of gas for electricity means that wholesale power prices are expected to rise by 422 per cent this winter. This compares unfavourably with a 388 per cent rise in Germany and 334 per cent rise in Italy, according to data from the energy company Octopus, which has been shared with the New Statesman.

The massive increase in the price of energy means that the energy price cap for UK consumers is likely to increase to £4,266 by January 2023, according to the energy consultancy Cornwall Insight, a four-fold increase since January 2019.

[See also: Can Norway save us from the energy crisis?]

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It may feel inevitable that the large wholesale electricity price increase in the UK will drive up inflation, but this doesn’t have to be the case. An even larger wholesale electricity price increase of 743 per cent is expected in France, but this is largely due to the country unexpectedly having to import much more power because half of its nuclear power plants – which normally provide 70 per cent of French electricity – are currently offline for maintenance. But French consumers are being protected from this price increase because the French government has decided to shoulder most of the burden itself, capping the consumer electricity price rise at 4 per cent until at least the end of 2022.

It is not just France doing more to help consumers. The UK government has so far released a £16bn (€18.9bn) support package to help households with rising electricity and gas bills this year, far less than Spain (€27.3bn), France (€44.7bn), Italy (€49.5bn) and Germany (€60.2bn). This means UK consumers are bearing more of the brunt of the crisis than their European neighbours.

The UK government has introduced an array of measures, including a one-off £400 energy bill discount for all consumers and a £500m support package that will be distributed by local councils. But governments in Europe have announced more wide-ranging measures to address the energy crisis. In Germany, there are plans to temporarily reopen coal-fired power plants to reduce dependence on expensive gas imported from Russia, and two relief packages, worth €30bn (£25bn). They include a €300 one-off energy discount for taxpayers, €100 per child for families receiving child benefits, and a €200 one-off payment for people on benefits.

Whatever price rises are being absorbed by consumers, they will be felt more acutely by low-income households, because they spend a greater portion of their income on energy. A recent blog post from the International Monetary Fund (IMF) said it should be a “priority” to put in place relief measures to support low-income households. That same post included an analysis, recreated below, which shows the UK and Estonia are the worst European countries when it comes to how well the poorest in society will cope with energy price increases.

The risks from the UK’s lacklustre support for consumers are profound. More than half of UK households will enter fuel poverty – meaning more than 10 per cent of household net income is spent on fuel – by the start of next year, according to an analysis from the Child Poverty Action Group. 

Colder regions will feel the impact of fuel poverty more acutely, with 72 per cent of households in Northern Ireland and 62 per cent in Scotland expected to enter fuel poverty. 

The consumer rights campaigner Martin Lewis has suggested more radical solutions to the UK cost-of-energy crisis. He has called on the government to double the amount of support it is offering the poorest households. The former prime minister Gordon Brown, meanwhile, has called on the energy price cap to be scrapped, and for the government to negotiate new, subsidised prices with energy companies. 

[See also: Is this the energy industry's "Lehman moment"?]

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