Household finances are under pressure as some energy companies are pushed to the brink.
At least 1.5 million consumers have seen their suppliers crash in recent weeks after the energy sector was hit by soaring global wholesale gas prices.
Here’s a look at how households might face a perfect storm of price pressures and what’s going on in the energy sector:
– What happens to energy bills?
Soaring global gas prices dramatically increase the cost of energy.
The Ofgem regulator regularly sets an energy price cap, which acts as a ‘safety net’ for customers on default tariffs and the cap will drop to Â£ 1,277 from 1 October for a typical user.
Customers who benefit from cheap deals risk being pushed all the way to the price cap, which could mean paying hundreds of pounds more a year.
The cap is based on what has already happened in the underlying energy markets, and is therefore expected to rise again next April.
Consumer champion Martin Lewis suggested earlier this week that from April 1 the cap could rise to more than Â£ 1,500 a year.
It has also been suggested that people living in northern regions could particularly suffer from rising prices, with temperatures often colder.
– What has happened to energy companies?
The number of collapsed companies represents more than 5% of the market.
Avro became the most important in a series of recent failures in the energy market on Wednesday. Green – which also closed on Wednesday – PFP, MoneyPlus, Utility Point and People’s Energy all exited the supply market in just over two weeks. Last month, HUB Energy ceased operations.
– What about other energy companies?
It is believed that more businesses could be overthrown. Some have stopped taking new customers.
With a smaller number of companies expected to operate, it has been suggested that the major players British Gas, Scottish Power, E.On and EDF could potentially benefit from reduced competition, along with some of their bigger challengers.
– What happens if my energy company goes bankrupt?
The Ofgem regulator will protect any customer credit balances and appoint a new supplier. However, the new deal could be significantly more expensive, given the current situation.
Ofgem says that if a business goes bankrupt, consumers can read a meter and wait for it to appoint a new supplier.
When people are contacted by their new provider, they can apply for the cheapest rate – or switch without paying an exit fee.
– Are we going to go back to a blackout situation of the 1970s?
Ministers said there was no risk of the lights going out this winter as energy supplies are secure despite rising costs.
– What about my supermarket shop?
Some fear that shoppers may start panicking buying, especially as Christmas approaches.
The National Farmers’ Union (NFU) has requested an urgent Covid recovery visa to allow companies to recruit from outside the UK to address’ crippling ‘labor shortages along the supply chain. supply.
The government said the UK has a very resilient food supply chain, which has weathered unprecedented challenges well.
He said he is working closely with industry to understand the demand and supply of labor.
– What makes life difficult financially at the moment?
The cost of living has already increased. The consumer price index (CPI) measure of inflation hit a nine-year high in August. Experts had previously predicted that the 3.2% increase could accelerate to more than 4% by the end of the year.
Many households are also still trying to repair the financial damage caused by the coronavirus crisis. Some are in greater debt than they otherwise would have had, having taken payment holidays to tackle the immediate financial threat of the pandemic. According to figures from UK Finance, the average value of suspended mortgage payments per month was Â£ 755.
Many people still face the uncertainty of employment, including some workers in energy companies.
Sarah Coles, Personal Finance Analyst at Hargreaves Lansdown, said: âAt the end of August it was thought that between 1.3 million and 1.7 million people were on leave …
âThere is still hope that employers will only wait until the end of the program to bring people back, but that means hundreds of thousands of people are still stuck at home, worrying about their future and watching the countdown until the time off support disappears completely.
– What will happen in the near future?
A Â£ 20 per week increase in universal credit payments is expected to end on October 6 – with some 4.4 million households on universal credit, they are also expected to see their energy bills rise significantly in October.
– Anything else on the horizon?
In the longer term, a Â£ 12 billion tax hike is also on the horizon to help finance welfare reforms. A 1.25 percentage point increase in national insurance will be introduced from April 2022.
– Who else will keep a close eye on what’s going on?
AJ Bell chief investment officer Russ Mold said that alongside consumers, investors and central bankers “will also be eyeing food prices nervously, amid shortages of truckers, container ships and carbon dioxide. of carbon”.
He said: âInvestors will be interested – if not worried – whether food prices will be the source of a sustained surge in inflation that could affect consumers’ ability and desire to spend.
“Central bankers will be watching, in case inflation forces its hand and requires a tightening of monetary policy in the form of a reduction in quantitative easing and a hike in interest rates.”
Investors may also want to watch the global political situation, he added, as food shortages and soaring prices have sparked turmoil in the past.
– So what can households do to try to offset the rising costs?
Shopping around and comparing energy offers is always important, although with so many prices on the rise it will likely be a much more difficult task than usual.
MoneySavingExpert.com has a cheap energy club that helps people find deals that suit their needs across the market.
People could try to come up with a fixed rate deal to make sure, or they could rely on price cap protection and hope for the better.
There are also various support programs such as winter fuel payments and the warm house rebate.
Ofgem has support information available at www.ofgem.gov.uk/energy-advice-households/find-schemes-grants-and-benefits-help-home-energy.
– Are there other ways for households to cut back and save money?
There may be ways to save small amounts of money that will add up over time. For example, aligning supermarket stores with times of the day when items are on sale, or making packed lunches rather than buying lunch outside.
As a result of the mortgage price war of the past few months, homeowners could see if they could lower their monthly costs by changing their mortgage.
Several banks are also offering current account switch offers of over Â£ 100, which could also give household budgets a cash injection.
The government-backed MoneyHelper service offers budgeting guides at www.moneyhelper.org.uk/en/everyday-money/budgeting.