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Energy crisis: UK households worst hit in western Europe

The energy crisis is hitting UK household budgets harder than any country in western Europe, according to an analysis by the International Monetary Fund. The difference between the cost burden on poor and rich households is also far more unequal in the UK compared with other countries.

The reason is the UK’s heavy reliance on gas to heat homes and produce electricity at a time when Russia’s war in Ukraine has sent gas prices soaring. In addition, the UK has the least energy-efficient homes in western Europe.

There is widespread agreement from energy experts on the best solutions: a large-scale and rapid insulation programme and a faster rollout of wind and solar energy, which produce electricity that is currently about nine times cheaper than that from gas, as well as short-term financial support for bill-payers. The government has consistently failed over the past decade to deliver major insulation programmes and has effectively banned onshore wind.

The IMF analysis assessed the impact of the energy crisis expected over the whole of 2022, based on forward fossil fuel prices in May, since when prices have risen. It found that the average UK household is expected to lose 8.3% of its total spending power in 2022 as a result of having to pay higher energy bills. The figure in Germany and Spain is 4%, while only Estonian and Czech households face higher impacts than the UK in the whole of Europe.

Energy bill rises also push up the costs of other goods, as sellers pass on the price rises. These indirect effects will knock another 2% off the money UK households have to spend in 2022. The IMF analysis takes account of people reducing their energy use as prices rise.

“The distributional impact is especially skewed [in the UK],” said Oya Celasun from the IMF. The poorest 10% of UK households are expected to spend 17.8% of their budget on energy in 2022, while the richest 10% will spend 6.1%, the analysis found. The difference of 11.7 percentage points is by far the greatest disparity among the 25 European countries assessed. In France, the difference is 3.9 percentage points, and in the Netherlands, 2.5.

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