UK energy prices at 50-year high and set to triple

A global energy crisis has been building for nearly a year, after the post-Covid rebound crashed headlong into Russia's invasion of Ukraine, sending gas prices already soaring in the stratosphere.

Soaring household energy bills are now making headlines and candidates for the post of British Prime Minister have been repeatedly asked what they would do in response.

Yet public and political discourse on energy bills often misrepresents basic facts about the scale and causes of the crisis, making serious engagement with solutions difficult.

In this article, the Carbon Brief explains how and why UK household energy bills are set to reach historic highs this winter, shows how rising bills due to gas will push household energy costs up to 200 billion pounds and examines options for managing the crisis.

Analysis reveals:

Energy bills are already at their highest level in at least half a century and are expected to almost triple by the start of next year, reaching well over £5,000 for the average household. UK households face a £129bn rise in energy costs (5.1% of GDP), totaling £193bn a year (8.1% of GDP). This means households will face energy costs that exceed the UK government's education expenditure (£100bn) and defense budget (£49bn) combined. Given that households have historically accounted for half of national energy expenditure, the overall costs to the economy as a whole are expected to reach around 16% of GDP. Rising bills will push two-thirds of UK households into fuel poverty by January 2023. An 11-fold increase in wholesale gas prices in the UK since 2019 explains 96% of the increase in household energy bills. Green levies will drop from 5% of bills to less than 3% of the total in October. Government support for households so far amounts to just £17.5billion, and plans to cut VAT or scrap levies would only save around £4billion sterling each. Proposals for additional support from leadership candidates Liz Truss (£11billion) and Rishi Sunak (£10billion), as well as the opposition Liberal Democrats (£36billion), are still a long way off to match the magnitude of the increase in household bills (£129bn). The opposition Labor Party's £29billion "six-month freeze" could cost £73billion if extended for another year. The least efficient homes face bills up to £2,000 more than those rated 'C' or better. Bills would have been around £13billion lower if governments hadn't 'cut the green shit' by rolling back climate policies over the past decade, which equates to £220 per household. Households could cut their bills by more than £300 by making simple changes to their boiler settings, with bigger savings from insulation, solar panels or electric vehicles.

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How high will household energy bills be?

In October, the household energy bill cap is set to hit new highs of over £3,500, according to the latest forecasts from various financial services and consultancies.

Investec expects the cap to rise from its current level of £1,971 per year for the average household to £3,523 on October 1, an increase of 79%. Cornwall Insights suggests £3,582. (Update, 26/08/2022: Ofgem has announced that the energy price cap will rise to £3.54...