Fuel stress set to double to five million families in April as Chancellor opts for universalism over targeted support for low-income families at heart of cost of living crisis

The Government’s Energy Rebate Plan, which provides almost universal support with energy bills, rather than targeted support for low-income families, will reduce but far from end the rise in fuel stress this April as a result of the energy price cap rising by £693, according to the Resolution Foundation.

The Foundation’s analysis shows that – in the absence of Government action – the price cap rise on 1 April would have trebled the number of families in England living in ‘fuel stress’ (spending at least 10 per cent of their family budget on energy bills) to over six million families in total.

However, the Energy Rebate Plan – which includes a £200 rebate on energy bills this year across Britain, a £150 Council Tax rebate for those living in A-D band properties across England (with funding for Wales, Scotland and Northern Ireland), and extending the Warm Homes Discount (WHD) to an additional 780,000 families across England and Wales – is set to reduce the coming rise in fuel stress, which is now set to rise by 2.5 million to five million families in total.

The Chancellor’s plan will provide significant support of £350 to about four-in-five households this year. However, by opting for near-universal rather than targeted support – which could have been achieved via the benefits system or a much bigger expansion of the WHD – the package doesn’t offer enough to many low-income families who find themselves at the heart of the cost of living crisis, says the Foundation.

Supporting families via a £4 billion Council Tax rebate is a more progressive policy than cutting VAT or stopping the National Insurance rise, as some have called for, says the Foundation.

However, it notes around one-in-eight of the poorest tenth of families don’t live in Band A-D properties, and therefore won’t receive the rebate automatically, while those that don’t pay Council Tax (such as students, some tenants and some benefit claimants) won’t get the full package of support either.

The Foundation adds that the majority of the Chancellor’s £9 billion plan will be funded via higher energy bills over five years from 2023. This is a risky strategy it says, particularly if the price cap rises again in October 2022 and April 2023, as it will bake in high energy bills for many years to come.

Adam Corlett, Principal Economist at the Resolution Foundation, said:

“The £693 rise in the energy price cap this April would have trebled the number of families falling into fuel stress overnight. The Chancellor has rightly responded with an ambitious plan to limit the rise in bills this year.

“However, by opting for near-universal support over targeted help for low-income families at the heart of the current cost of living crisis, the number of families in fuel stress is still set to double.

“Households will have to wait until October for the Energy Bills Rebate to actually kick in, and while around one-in-eight of the poorest families could also miss out on support this April as they’re not automatically entitled to the Council Tax rebate.

“The Chancellor’s approach of funding a reduction in energy bills this year through higher bills over the following five years is also a risky strategy, especially if the cost of gas doesn’t fall soon and sharply. High energy bills could be a feature of the 2020s – emphasising the need to wean Britain off fossil fuels.”