10 October 2022

Fuel efficiency gap will cost households hundreds of pounds

Energy costs for older, poorly insulated homes will increase by twice the rate of more efficient ones.

There were protests in Birmingham on 1 October, the day that energy prices went up. Photo by Leon Neal/Getty Images

The latest energy price cap came into effect at the start of this month (October), and it has occupied much of the conversation around the cost-of-living crisis as winter approaches.

Liz Truss’s energy price guarantee means the average energy bill will be £2,500 a year (rather than £3,459 under the price previously set by Ofgem, the regulator), and the Prime Minister is also keeping in place the £400 discount in the energy bill support scheme introduced by the last administration.

Communication about the policy has been poor, however, and Truss herself has contributed. She has said that the cap means that “nobody is paying fuel bills of more than £2,500″, but in fact it limits only the cost of energy per unit, not the total bill, and the £2,500 figure is based average household usage. Things such as the size of a family, the type and size of their home, and how well-insulated and efficient it is, will affect how much energy they use, and therefore how much they spend. Even with the new price cap and the energy bill support scheme millions of households will see a huge increase in their bills compared with last year, and there are significant disparities in how hard the price rise will hit them.

Analysis by the Resolution Foundation think tank, which focuses on living standards, has found that the bills of those living in poorly insulated, fuel-inefficient homes rated F on the energy performance certificate (EPC) scale, will rise on average from £1,746 a year last winter to £3,091, an increase of 77 per cent. In comparison, the bill for a home rated C on the EPC scale will increase by 52 per cent to £1,947.

In England 58 per cent of assessed homes have an EPC rating of D or worse, rising to 62 per cent in Yorkshire and the West Midlands. In Wales it is 63 per cent.

In the past decade the number of home insulation measures being carried out has dropped drastically. These insulation measures aren't just about cost – old and poorly insulated homes are more likely to be cold, mouldy or damp, which can contribute to significant physical and mental health problems.

While the government has introduced policies requiring newly built homes to meet energy efficiency standards and brought in financial incentives for households to increase their energy efficiency, the Labour Party argues these policies don’t go far enough. Labour’s "warm homes plan" would aim to insulate 19 million homes over a decade.

The disparity in energy bills can be seen across types of location, too. Those living in urban areas are more likely to live in smaller properties or blocks of flats, which are more likely to be easier to heat and more energy efficient. Their average annual energy bill is going up by £941 compared with last winter. In comparison, those living in villages and rural areas are more likely to live in homes that are larger and less well-insulated, making them much more expensive to heat.

“The government’s energy bill support packages mean that families will see their energy bills increase by just 7 per cent this winter – a significant intervention which will protect households from the worst of energy price rises,” said Jonathan Marshall, senior economist at the Resolution Foundation. “But while the scale of support is hugely welcome, millions of households will remain exposed to unaffordable energy costs... And while the government has made the right call on short-term intervention on prices, in the longer term incentives to reduce consumption will become increasingly important.”