London Daily

Focus on the big picture.
Monday, Mar 09, 2026

Cost of living: Spiralling energy bill burden will send UK into catastrophic territory

Cost of living: Spiralling energy bill burden will send UK into catastrophic territory

Grim budget forecasts for struggling households imply widespread destitution and an economic winter of the kind we have not ever seen outside of war.

We have never seen anything like this.

The UK has been through all sorts of ups and downs (sadly more of the latter than the former) in recent years.

There was the financial crisis of 2008 and the recession that followed, a lost decade of stagnating real wages and productivity, Brexit and of course the COVID-19 pandemic and its associated lockdowns.


Each of these events constituted a big economic moment, but none of them will prepare us for what we are about to experience this winter.

Because energy crises are simply different.

This time around it is not the financial plumbing that has broken but the most important forces in all our lives: heat and power.

Energy is such an important, ubiquitous part of the economy that, as with many other important, ubiquitous things like air and water, we usually take it for granted.

But this crisis is one of those moments where we are being forced to pay attention.

Nearly all economic activity is, one way or another, a form of energy transfer.

The implications are enormous


Most economic output depends, somewhere along the line, on energy, whether it's the power for your computer or the natural gas and coal we burn when we make glass or steel (or silicon chips).

All roads lead you back eventually to energy in all its guises.

So when the price of that ubiquitous, essential force goes up like it has done recently, the implications are enormous.

This is not a UK-specific issue; every country around the world is grappling with this challenge - European nations most of all - but Britain's slightly odd way of setting domestic prices means it provides a stark example of the scale of the issue.

The system works roughly as follows: every six months the regulator, Ofgem, looks at wholesale prices, runs them through its model which allows for some extra costs including the legacy of expensive renewables and a small margin for suppliers, and sets an average unit price for gas and electricity.

Those prices are most often announced in the form of a "household average" based on typical usage.



Last time the cap was announced the average was £1,971; now Ofgem has announced it would go up to £3,549 from the start of October.

However, these bare numbers only tell you so much.

So the best place to look next is at typical household spending and to see what those kinds of numbers mean as a proportion of our typical outlay.

Part of the reason many of us take energy for granted is that it has been relatively cheap in recent decades - though the word "relative" is important here: for some families, energy costs have long been a serious burden.

Still, averages are the simplest measure we have here, and the average amount households paid for heating their home and providing electricity between 2000 and 2020 was about 3.9% of their total spending.

Things start to look grisly


This was low in both historical and relative terms: between 1957 and 1987 the proportion we spent on heat and power was just over 6%.

But factor in the latest increases in the price cap and things start to look grisly.

The proportion we spend on heat and power has been creeping up in recent years, up to around 6% in the middle of this year - when the price cap hit £1,971.

This was the highest household "energy burden", as we might call it, since the mid-1980s.

This level, it's worth saying, has already been responsible for increasing the number of people in fuel poverty considerably, as well as the number of people in arrears on their utility bills.

But the October increase will push the energy bill burden up to 10.5% of typical expenditure.

This would be comfortably the highest level since comparable records began in 1957.

To put it into perspective, it is about the same as we currently spend on food and drinks, though of course they are also going up in price (in large part due to high energy costs - you see, all roads lead back to energy).


Now, the government has introduced a set of measures to help: there is a £400 grant for all households, a council tax rebate of £150 for most households and an extra £650 for those on means-tested benefits (as well as grants for pensioners and those on disability benefits).

At the time, this was a genuinely generous package, costing over £30bn.

However, even once you factor this into our calculations, the average household will still face energy bills of 6.9% of their total spending.

This would be the highest level ever - albeit lower than that 10.5% it would've been without government help.

The problem, however, is that this is highly unlikely to be the end of it.

It's extremely hard to predict the future course of wholesale gas prices, but based on where futures markets are pointing now, Cornwall Insight, an analyst, thinks the price cap would exceed £5,000 when it is next calculated in November (the cap will be revised every three months from then - a procedural switch being introduced by Ofgem at the worst possible time).

It would go above £6,000 in the spring, based on current trends.

This is beyond implausible


Given the energy bill burden is already going to be at a historic high in October, it goes without saying that these future increases would take us towards catastrophic territory.

At those kinds of levels, the average household would have to pay about a fifth of their household budgets on energy bills.

Poorer households would have it even worse: my slightly rough-and-ready calculations suggest that even after those generous government grants about 40% of their spending would have to go on gas and electricity.

This is beyond implausible.

It would imply widespread destitution and an economic winter of the kind we have not ever seen outside of war.

All of which is why it seems implausible that the next prime minister, be it Liz Truss or Rishi Sunak, will not intervene, and intervene big, this winter.


This moment feels not unlike the days and weeks before the announcement of the furlough scheme in early 2020: the UK was heading towards a lockdown yet the government had yet to announce extensive support, save for a few small-scale schemes.

In the end, it delivered the single biggest intervention in post-war history.

The furlough scheme ended up costing more than £50bn a year - and had enormously far-reaching consequences we are all very familiar with.

That brings us to the current situation.

The government has already committed around £30bn to energy bills.

Mr Sunak and Ms Truss have both outlined schemes which will involve the distribution of a few more billions of pounds of support.

This is unlikely, given the scale of what we've discussed above, to be enough.

It would not prevent widespread increases in fuel poverty, and a very deep recession.

Sir Keir Starmer has suggested a more radical policy: freeze the energy price cap where it is now, at £1,971.

This would certainly prevent a sharp increase in fuel poverty and many economists think the eventual prime minister will have to go for something similar.

But how much would it cost?

A rough and ready calculation suggests the following.

This is big stuff, with enormous consequences


With the energy price cap at £3,549 (in other words where it will be as of 1 October) it will cost around £40bn.

If the price cap goes up in line with Cornwall Insights' projections and exceeds £6,000 next spring, it will cost a whopping £120-130bn.

It would be more than twice the scale of the furlough scheme, sending the UK's national debt up well above 100% of GDP.

In short, this is big stuff, with enormous consequences.

And we haven't even got on to the consequences for businesses, which are doubly important here since if businesses start collapsing in droves then that also means the collapse of earnings for many families around the country.

Now, much of the above (including those costings) depends on what happens next with energy prices.

It's quite possible that after the current spike, gas and electricity prices (which are being kept high by a combination of factors, most obviously Russia's invasion of Ukraine) could moderate.

Then again, it's also plausible that Europe loses Russian gas altogether this winter, which would likely push gas prices even higher than their current levels.

It would be grisly for all concerned.

An everything crisis


The UK can at least comfort itself that it is slightly more insulated against the possibility of running out of gas than, for instance, Germany.

But if there is a cold snap it's anyone's guess what happens next.

It is all rather depressing, but this is the logic of energy.

An energy crisis, as I've said quite a few times in the past year, is an everything crisis.

We are starting to find out what that means.

Newsletter

Related Articles

0:00
0:00
Close
Trump Declines UK Offer to Deploy Aircraft Carriers to Middle East Amid Iran Conflict
Prince Harry and Meghan Markle to Return to Australia After Seven Years for Philanthropic and Business Engagements
UK Government Signals Independence From Washington as Cooper Says Britain Does Not Agree With Trump on Every Issue
UK Experts Warn AI Chatbots Are Fueling Surge in Claims of Organised ‘Satanic’ Ritual Abuse
UK Political Parties Divided Over Strategy as Iran Conflict Reshapes Foreign Policy Debate
Britain Discloses Secret Military Repair Hubs Operating Inside Ukraine
Trump Says US No Longer Needs UK Carrier Support After Delayed Offer Amid Iran Conflict
Why Britain Has Become Involved in the US-Israel Military Campaign Against Iran
UK Gas Storage Falls to Under Two Days as Iran Conflict Jolts Global Energy Markets
UK Warned to Brace for Economic Shock as Iran War Drives Global Energy Price Surge
Starmer and Trump Hold First Call After Public Dispute Over Iran Conflict
UK Dentists Returned £1.3 Billion to Government as Shift Toward Private Care Accelerates
Expert Warns UK Must Build Emergency Food Stockpiles to Prepare for Climate Shocks or War
UK Plans Charter Flight to Evacuate British Nationals from Gulf as Regional Conflict Disrupts Air Travel
Families of Zimbabwe’s Liberation Fighters Call on Britain to Help Locate Skulls Taken During Colonial War
Iran’s Ambassador Warns Britain to ‘Be Very Careful’ Over Deeper Role in Expanding Middle East War
UK Military Leadership Defends Britain’s Defensive Role in Expanding Middle East Conflict
Four U.S. Strategic Bombers Arrive in Britain as Iran War Intensifies
Soham Murderer Ian Huntley Dies After Violent Attack in High-Security Prison
UK Lawmakers and Experts Condemn Scale of Overseas Human Remains Held in British Museums
Royal Navy Aircraft Carrier HMS Prince of Wales Placed on Standby for Potential Deployment
United Kingdom Confirms U.S. Military Using British Bases for Operations Targeting Iranian Missile Sites
Starmer Defends UK Role in Iran Conflict After Renewed Criticism from President Trump
Blue Owl Reveals £36 Million Exposure After Collapse of UK Lender Serving Wealthy Clients
UK Asylum Reform Plan Triggers Fierce Debate Over Border Control and Humanitarian Impact
US Stealth Bombers Head to UK Base as Trump Issues Stark Warning to Iran
UK Deputy Prime Minister Says Legal Case Could Exist for British Strikes on Iranian Missile Sites
Investigators Link Mysterious Parcel Fires Across Europe to Russian Intelligence Operation
Debate Intensifies Over Britain’s Legal Justification for US Military Operations Launched From UK Bases
Britain Faces Heightened Energy Price Risks as Iran-Linked Tensions Threaten Global Oil and Gas Supplies
British Counter-Terror Police Arrest Four Suspected of Spying on Jewish Community for Iran
Axel Springer Agrees $770 Million Deal to Acquire Britain’s Daily Telegraph
Iceland Supermarket Drops Trademark Challenge Against Icelandic Government in Long-Running Naming Dispute
UK Defence Secretary Visits Cyprus Following Scrutiny of Britain’s Response to Drone Attacks
Questions Grow Over Britain’s Military Readiness as Response to Iran Conflict Draws Scrutiny
UK Offers Failed Asylum Seeker Families Up to Forty Thousand Pounds to Leave Voluntarily
Saharan Dust Could Bring ‘Blood Rain’ to Parts of the UK as Weather Systems Shift
UK Deploys Additional Typhoon Fighter Jets to Qatar and Helicopters to Cyprus Amid Rising Middle East Tensions
Experts Urge Britain to Accelerate Renewable Energy Push as Global Conflicts Drive Up Costs
British Public Shows Strong Reluctance to Join Wider War in Iran
First UK Evacuation Flight Departs Middle East After Lengthy Delay
United Kingdom Imposes New Visa Requirements on Travelers from St. Lucia and Nicaragua
Iran Conflict Strains U.S.–U.K. Alliance as Trump and Starmer Clash Over Military Strategy
UK Interest Rates Could Rise Above Four Percent Again if Energy Shock Continues, Think Tank Warns
Starmer Defends Britain’s Iran Strategy as Badenoch Urges Stronger Military Support
Labour MP Says She Saw No Sign Husband Broke Law After Arrest in China Espionage Investigation
UK Jobless Rate Overtakes Italy’s for First Time in Years as Labour Market Weakens
United Kingdom Suspends Student Visas for Four Countries in Unprecedented Immigration Move
Campaigners Warn UK Student Visa Ban Could Push Migrants Toward Dangerous Channel Crossings
First U.K. Charter Flight for Stranded Nationals Set to Depart Oman Amid Middle East Crisis
×