Households cannot afford to pay extra on energy bills

Over 12.5 million customers were affected by EDF Energy's and British Gas' second price increase in six months, and other suppliers are now expected to follow suit in the coming weeks. With food bills soaring and energy bills already at record highs, this second wave of energy price hikes will hit consumers hard, according to a new study by uSwitch.com, the independent price comparison and switching service.

The survey reveals 1 in 2 households (13 million) are planning to cut down on heating as the cold weather draws in this winter, 54% will become more energy efficient and 4 million (15%) homes will take drastic measures to reduce their energy usage by cooking fewer hot meals.

With two of the big six energy suppliers having announced price increases in the past month, consumers are steeling themselves for the remaining four suppliers to follow suit - a move that could see many households facing heating hardship this winter. In recent weeks energy bills have increased by an average of 23% for those affected by the increases, adding an extra £239 a year or £20 a month to bills. However, today's study has found that 10 million (39%) households simply cannot afford to pay anything extra, while 4 million (17%) can only comfortably afford an extra £10 a month and 1 in 10 could stretch themselves to a monthly increase of up to £20.

Industry insiders warned consumers earlier this year to expect further price rises of 40% before the end of the year. This would plunge an extra 1.6 million into fuel poverty, taking the total from 4.5 million to 6.1 million. Historically it's pensioners and those on low incomes who have been hit hardest by soaring energy costs. However, coupled with the ongoing credit crunch, more and more hard-pressed households will feel the full blow of this round of energy price rises. In fact, almost 1 in 3 (30%) joint income families with children and almost 1 in 2 (47%) single income families are finding it hard to pay the bills and keep the lights on.

Prior to the second wave of increases, the average energy household bill was £1,048 a year or £87 a month. However the second wave of price rises has so far taken the average to £1,127. For British Gas and EDF Energy's customers, recent price rises have caused energy bills to increase by an average 23%, adding an extra £20 a month to energy bills - taking their average energy bill to £1,270 a year or £106 a month.

Wholesale gas prices for the coming winter have increased by 89% on the previous winter and residential profits for the first half of 2008 are down across the industry. So it's not just EDF Energy and British Gas customers who will be affected. All suppliers are expected to announce further price hikes in the coming weeks. If predictions of a 40% increase in fuel bills become a reality, average household energy bills would rise to a crippling £1,467 - meaning spending on energy would account for 5% of the average household's net income.

Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "The second wave of energy price rises has put the final nail in the coffin for affordable energy. News of the Government's much speculated £150 one-off rebate for families receiving child benefit will provide respite for some households, but for others, it will be a drop in the ocean. The meteoric rise in the cost of living is affecting virtually every household and age group - it is leaving a hole in our pockets that pay rises alone cannot fill.

"Households who are concerned about their jobs, their homes and their ongoing ability to pay their bills will be left with no choice but to cut back on both heating and eating this winter. Soaring wholesale gas prices have made their impact on suppliers' profits and ultimately on consumer bills. The government needs to provide a strategy and regulatory environment to ensure that the lights stay on at an affordable price. But the bigger obstacle will be making the longer term adjustment to pay for far higher energy prices to plan and invest for our country's future energy needs.

"With energy bills continuing to burn a hole in households' dwindling pockets, consumers need to take steps to minimise their energy usage and reduce the amount they pay. Sourcing the cheapest provider is one means of holding on to the pennies but adopting more energy efficient measures will also help.

"This is not just a short-term spike. Consumers cannot afford to ignore this - they need to take action now to stand any chance of limiting the impact of higher prices. Online energy plans remain a good option for those who want to pay a lower price now."