Martin Lewis: Energy measures could forestall catastrophic choice between freezing and staving for some, but unlikely all
Today has seen a raft of announcements for consumers – a new energy price cap, measures being introduced by the Government to curb the financial impact (including council tax rebates for some) and the first back-to-back monthly base rate rise since 2004.
Responding to them, Martin Lewis explains what it means for consumers’ pockets, and if Government measures will do enough to protect those at risk of being forced to choose between heating and eating.
Martin Lewis, founder of MoneySavingExpert.com, said: "The cost of living crisis came to a head today, with UK interest rates doubling and a rise of 54% in energy bills from 1 April for 22 million homes that was previously unthinkable and is now catastrophic. The Government had no choice but to put energy-hike mitigation measures in place, as at that rate, huge swathes of people will – without exaggeration – face a choice between starving and freezing. What they’ve done will certainly forestall that for many, but I doubt all.
"The first measure – a £200 rebate on bills in October – is on the surface more generous; nearly double the cash that a cut in VAT proposed by others would have been. Plus, as it’s a flat rate it is weighted to benefit lower energy users more. After all, £200 goes a long way to covering a 50% increase on a £600 a year home, but is negligible for a home with bills of £3,000 a year.
"Yet the issue is that it is a loan and it needs repaying at £40 a year – in effect the Chancellor has created the equivalent of a giant UK-wide energy direct debit, trying to spread the hit of a high-cost period and repay once things return to normal. The problem is there’s no guarantee they will return to normal. This ‘winter’ could last for years, and if that happens, an extra £40 on future bills will be a very high price to pay.
"The £150 money towards council tax bills for those in bands A to D in England, which affects nearly 20 million households (with similar funds for the rest of the UK), is a welcome boost – and a clever mechanism to target lower and middle-income households, rather than individuals. Yet it is far from a perfect solution, and will leave some getting help when they’ve high incomes and others with low incomes missing out.
"I spoke to the Chancellor the other day and urged him to ensure that whatever solution he came up with, there was a discretionary fund to cover the edge cases who’ll miss out. So I’m particularly pleased to hear that he listened to that and there will be £144 million put aside for local councils to give to those people who won’t get the £150.
"On top of all that, we are also going to see a 0.25 percentage-point increase in the Bank of England base rate – which won’t hit people as directly as the energy rates, but will add fuel to the financial fire for some – especially those on variable-rate mortgages and particularly for those who are trapped on those rates and unable to switch. It will see variable-rate mortgage-holders likely pay around a typical £12/month rise per £100,000 borrowed. Hopefully, savers will see a small improvement in the best easy-access rates soon, but it certainly won’t take the edge off the disastrous situation for heating your home."
See MSE’s latest news story for details on the new measures to protect consumers’ finances, an instant video reaction from Martin and further analysis as the story develops.
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