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Wednesday August 17th, 2022 6:27AM

High energy costs are hitting UK; it's about to get worse

By The Associated Press
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LONDON (AP) — Tia Rutherford is worried about her 3-year-old son.

As energy prices soared last fall, she tacked fleece blankets over her doors and windows to keep the cold out and started serving Jacob breakfast in his room so she didn’t have to heat the living room. But she's consumed by worry that she can’t pay her utility bills and that her son isn't warm enough.

“There are effects on his health,’’ said Rutherford, a 29-year-old single mother who lives in southeast London. “He’s constantly catching colds.”

People across the United Kingdom will face similar choices in coming months with energy costs for millions of households set to rise by 54% on Friday. It is the second big jump in energy bills since October, and a third may be ahead as rebounding demand from the COVID-19 pandemic and now Russia's war in Ukraine push prices for oil and natural gas higher.

Energy costs are the main driver of rising consumer prices. While inflation is a worldwide phenomenon, it's a bigger issue in Britain because it's more exposed to rising natural gas prices than even its gas-reliant European neighbors, where utility bills and other costs also have soared. Prices for natural gas, which is used for electricity and heating, have more than doubled in the past year.

In the U.K., economists warn of the biggest drop in living standards since the mid-1950s, fueled by rocketing energy costs, food prices and preplanned tax increases. Disposable household incomes, adjusted for inflation, are expected to fall by an average 2.2% this year, according to the Office for Budget Responsibility.

Those figures obscure the impact on low-income people being hit disproportionately by the crisis. Because they spend a larger percentage of their budgets on food and energy, the poorest quarter of British households will see their real incomes drop by 6% this year, according to the Joseph Rowntree Foundation, a think tank focused on improving living standards.

People who rely on government benefits and state pensions are being doubly squeezed because their annual cost-of-living adjustment was based on annual inflation figures through September — before consumer prices spiked.

That means benefits are set to rise by just 3.1% this year. But inflation jumped to a 30-year high of 6.2% in February and is expected to peak at around 8% this year as the war sends food and energy prices ever higher, the Bank of England predicted.

As costs rise, people are moving their beds near windows so they can read by the light of the streetlamps outside, said outreach workers at Christians Against Poverty, which offers counseling for those in debt. Divorced fathers skip meals so they can afford to buy food for their children when they visit, and an increasing number of people report the pressures make them contemplate suicide.

“The cost-of-living crisis is genuinely costing lives,” said Gareth McNab, the charity’s external affairs director. “Almost every single call to our new inquiries team is mentioning the energy crisis and an inability to cope. And yeah, it’s desperate out there.”

Energy prices for 22 million households will rise Friday as an update of the national price cap kicks in. Regulators adjust it every six months. Analysts expect a third consecutive jump in the cap later this year, which could leave consumers with utility bills that are more than double what they were a year earlier.

Britain relies more heavily on natural gas to meet its energy needs than European Union countries, having less nuclear and renewable energy. Britain also has been slower than its neighbors in insulating and sealing the nation’s aging housing stock, so it takes more energy to heat them.

Britain’s largest gas storage facility also was allowed to close five years ago, leaving the country with the capacity to store just 12 days of supply, compared with about 80 days in Germany, which is also heavily reliant on natural gas. That means in crisis, Britain is more dependent on buying gas through “spot markets" that reflect short-term price swings.

“In normal times, we’re using more energy than (the Europeans) are to heat their houses, but … the price is low enough that you don’t really notice a big difference in the cost of living,” said Arun Advani, an inequality expert at the University of Warwick. “Now that energy prices are going up, they are paying more, but we’re paying a lot more. And so that difference is magnified.”

Even so, some European governments have acted more aggressively than Britain in trying to limit costs. France forced a state-controlled utility to limit electricity price hikes to 4% this year. Spain imposed a tax on energy producers' windfall profits that will be passed on to consumers.

Britain responded in February with a 9 billion-pound ($11.8 billion) package designed to help offset rising utility bills. Treasury chief Rishi Sunak announced more measures last week, including a cut in the tax on vehicle fuels. But he ignored calls to impose a tax on producers' windfall profits or delay a planned 1.5 percentage point increase in income taxes, also set for April.

Sunak said the government has to keep spending under control amid uncertainty caused by the war in Ukraine and after public debt last year rose to the highest level since 1963.

Lawmakers from all parties criticized Sunak for missing the point, suggesting he failed to understand the scale of the problem for low-income people. But he isn't backing down.

Meanwhile, people who have little are trying to live on less. Chris Price, who runs a community charity called Pecan in south London, says food bank clients are passing up potatoes and other root vegetables because they need to be cooked.

“People are saying, ‘I need to have food which I can cook easily and cheaply because if I put something in the oven for too long, it takes up so much ... electricity or gas,’’’ he said. “And they are really uncertain if they can afford it.’’

These are the people also hit hardest by the pandemic and recent cuts in government benefits, leaving them with little to fall back on in the new crisis, said Adam Scorer, chief executive of National Energy Action, a charity focused on fuel poverty.

“There’s no cutting back. There’s no smart decisions," Scorer said. “You just don’t heat your home, and you don’t use your cooker, and you don’t heat water, and you don’t shower. You just don’t do those things because you can’t afford to do those things. There’s no choices for many people.”

Rutherford is one of those running out of choices.

She gets her energy through a prepaid meter, often the only option for people who fall behind on bills. Prepaid meters allow customers to control how much they spend, but they pay high prices and can be left without power if they run out of credit.

That has left her struggling to top up the meter, pay off debt she already owes her energy supplier and keep her son warm when he comes home from day care. She’s tried to save by turning off the lights, living in the dark except for strings of tiny white Christmas tree lights that use less electricity.

“I didn’t have to live like this before,” she said. “I literally have no money — and my electric is going to cut out.”

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top General short headlines, AP World News, AP Business, AP Business - Economy, AP Business - Industries, AP Business - Utilities, AP Business - Personal Finance
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