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Price cap rise to push more StepChange clients into negative budgets – even after support

3 February, 2022

Reacting to today’s news on the 54% increase in the energy price cap, and the government interventions to cushion the blow of the price hike, StepChange Debt Charity says that it remains impossible to escape the conclusion that more people will experience debt problems in the face of rising cost of living pressures.

The added pressure of higher interest rates in the wake of today’s 0.25 percentage point rise by the Bank of England, with an expectation that inflation will peak at more than 7%, will not help soothe the concerns of worried households.

Typically, people experiencing debt have underlying problems that mean their income has reduced or they have had unexpected, unforeseen expenditure to contend with. However, “cost of living pressures” entered the top five reasons for debt among people turning to StepChange for help in November 2021, and remained there in December with 8% of new clients citing it.

Around 1 in 4 new StepChange clients are in arrears on electricity and/or gas at time of advice.

Compared to pre-pandemic levels, we have already seen a significant rise in the proportion of people in arrears on their electricity and/or gas bills over the past two years, even before the worst of the forthcoming price rises hit.

For example, 28% of new clients were in arrears on electricity in 2021 (compared to 17% in 2019, pre-pandemic), and 23% behind on gas bills (up from 13% in 2019). The average value of arrears among those with arrears has also increased (see table of long run data).

StepChange new clients with arrears on electricity or gas bills

details of new clients with arrears on electricity or gas bills 2018 to 2022

Analysis of StepChange client data suggests that, among new clients with a responsibility for paying a gas, electricity, or dual fuel bill:

  • 30% currently have a negative budget [see note 1] at the time of advice.
  • The impact of a 54% increase to fuel bills would mean that 48% would have a negative budget (before any support measures)
  • Even after government support measures, we expect the percentage to rise from 30% to 39%.
  • 24% of clients who currently have a positive budget would be pushed into a negative budget before the support measures. After support measures are included, 14% of positive budget clients are expected to fall from a positive budget to a negative budget.
  • Energy bills (before support measures) for StepChange clients are set to rise by an average of £61, from £111 per month to £172 per month.
  • The support measures proposed equate to £29.17 per month.

Government support will cover less than 50% of the increase in typical StepChange clients’ bills.

Government efforts to alleviate the damage to household budgets caused by the energy price shock are welcome. However, the measures proposed are not sufficient to plug the gap that the price rise will leave in people’s finances.

A £200 rebate falls far short of covering the near £700 increase in price capped bills. Although the £150 council tax rebate will help cushion the blow, these measures combined will still only cover half the energy price increase. For many households who already receive support with their Council Tax bill, these measures will not even amount to this much. StepChange supports the proposals to expand the Warm Home Discount. However, a £10 increase for those who already receive it will barely be noticed while the broadened eligibility still leaves millions of fuel poor households out of scope. This includes those not in receipt of means tested benefits who made up 48% of StepChange clients with energy arrears last year.

Phil Andrew, CEO at StepChange Debt Charity, said:

“Energy prices are already a source of massive worry for people experiencing or at risk of debt, and despite the measures to try to smooth out the imminent price hikes, there is no escaping the likelihood that electricity and gas arrears are likely to worsen.

“For people in debt, the risk of additional harm is huge. Energy costs are priority bills, but even if people do manage to pay them, they may well have to fall behind on other commitments to do so. It’s absolutely vital that Government and firms do as much as possible to cushion the blow, but also that other creditors recognise the drag this will have on household budgets and flex their expectations and the help they offer to customers accordingly.

“We welcome the Government’s package of support, but it won’t plug the gap in household finances for people experiencing debt. Millions of fuel poor households are out of scope for targeted support, including those not in receipt of means tested benefits - who accounted for 48% of StepChange clients with energy arrears last year. Further support will be needed to prevent many more households falling into debt.”

Notes to Editors

  1. A negative budget describes where a client’s monthly expenditure is greater than their monthly income after proceeding through StepChange’s advice and budgeting process Surplus is the amount of money left at the end of each month after a client has proceeded through StepChange's advice and budgeting process.

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