Energy Secretary Miatta Fahnbulleh has said the only way Britain can bring down energy bills for good is to reform the system and rely less on global energy shocks, as new research shows household disposable incomes have fallen faster than spending.
Budget measures offer breathing space
Writing in the Mirror, Ms Fahnbulleh acknowledged that measures announced by Chancellor John Healey in last week's Budget are not a "silver bullet". The package includes £100 for 20 million households, extending a VAT cut on electricity bills until next July, and removing standing charges from the gas element from later next year.
"These steps will give people some breathing space in the short term, and take the sting out of high energy bills," she wrote. "But I want to be straight with readers. I know this isn't a silver bullet."
"The only way Britain can take control of its bills and bring them down for good, is to reform our system so we are less exposed to global energy shocks. And the only way to do that is to get more clean, homegrown power online, and reduce our reliance on expensive, volatile fossil fuels."
Cabinet split over Rosebank
Her comments come amid reports of a cabinet split over a decision on the Rosebank North Sea oilfield, with Ms Fahnbulleh said to be minded to refuse the project on environmental grounds but Mr Healey in favour. Mr Healey said on Saturday that ministers would veto new clean energy projects if they add to Britain's multibillion-pound wasted wind bill and push up electricity costs for consumers.
Last month saw the government give the go-ahead to the controversial Jackdaw gas field in Scotland. The project, off the coast of Aberdeen, has been in limbo for two years after the High Court ruled a previous approval was invalid.
Critics say measures announced in last week's Budget do not go far enough given predictions that Ofgem's price cap will surge by an average 27% - nearly £470 a year - in January.
Disposable incomes fall
The wider cost of living pressure was highlighted by research suggesting the average Brit has £175 a month less to spend after essential bills than a year ago. The report by the website Moneysupermarket claims the average person spent £1,477.85 last month across 31 household bills and everyday outgoings, down from £1,657.67 a year ago, partly due to people cutting back where they can.
Some of the biggest year-on-year falls came from insurance, with households able to save an average 18% on their home cover and 15% on car policies. Yet offsetting those savings has been an even bigger drop in how much money households have coming in. The research puts the average person's income after tax at just over £2,200 this October, down from £2,558 a year ago, without giving a reason for the fall. The end result is that average disposable incomes have declined year-on-year from just under £901.91 to £725.15 - a drop of £175.76 a month.
Bills and outgoings now account for 67% of a typical person's income, up slightly from 65% a year ago, with large variations across the country. The research suggests Norwich is where essential bills eat up the biggest chunk, at 77%, leaving a typical person in the Norfolk city with £428.23 a month, or £107 a week. Next was Plymouth, where bills account for 72% of income, followed by Bristol (71%).
Regional and seasonal trends
London had the highest outgoings, at an average £1,703.60 last month, but those in the capital also tended to have higher incomes, meaning those costs take up around 65%, leaving Londoners with an average £898.90 a month, Moneysupermarket's annual Household Money Index claimed.
The research also points to the fact that while some costs have fallen year-on-year, they have risen in recent months. Since July, the average spent on energy has gone up 2% to £98.40 a month per person, while water bills have increased 3% to £42.50. Average monthly outgoings overall increased by £23.31 between July and October this year, while reported monthly income after tax rose by just £2.50 in the same period, meaning the average person had £20.81 less left over than they had three months ago.
Economists warned families are in the grip of the worst decade of income growth since at least the 1950s. The Institute for Fiscal Studies said households' disposable incomes are set to rise by just 2% during the 2020s, caused by a combination of factors including high inflation, weak wage growth and tax increases.
Moneysupermarket's report also found how nearly three in five of those surveyed said they were making more effort to cut spending than a year ago, while just over two in five are looking for ways to increase their income. More than two in five have skipped a purchase they wanted to make, while two in five have chosen a cheaper alternative and put the difference aside. Nearly one in three people are cutting back on non-essential spending to help cover energy bills, while 29% are spending less on meals out and the same proportion on clothes. More than one in five are reducing spending on holidays or travel, while 19% are cutting back on subscriptions.
Those concerns are also shaping Christmas spending plans. More than a quarter of people plan to spend less on Christmas presents to help cover their energy bills, while 26% are cutting back on festive socialising and 24% on Christmas food.
Kara Gammell, personal finance expert at Moneysupermarket, said: "Compared with a year ago, people report spending less on a range of household bills and everyday costs. But reported incomes have fallen even faster."
"The regional picture tells a similar story. The places with the highest household costs aren't always the places where people feel the greatest squeeze. What matters is not just what people spend, but how much income they have left afterwards."
"We're also starting to see signs that some everyday costs are edging upwards again as we head towards winter. At a time when household budgets remain under pressure, regularly reviewing your outgoings, understanding what you're paying for and comparing your options can help create some much-needed room in your monthly budget."
Lis Barton, chief customer officer of MONY Group, parent company of Moneysupermarket, said: "This year's index shows just how resourceful people are when it comes to looking after their future finances. We're calling them the 'Future Me Funders'. Our research reveals that more than half of people across the UK are finding creative ways to free up money and put it towards their future."
