‘No two households’ energy usage is the same’

Large households could pay up to £2,362 a year more than the headline energy price cap level come April, interactive investor research finds.

• October – December 2022 energy price cap set to be announced on Friday 26 August.

The energy price cap is predicted to surge to £5,456 a year by April next year, adding almost £3,500 on to the typical household energy bill from the current level, which is already a record price for energy.

But many consumers will pay more or less than this, depending on how big their home is and energy usage.

Households, occupying four or five people, could be set to pay up to £2,362 a year more (£197 a month) on energy bills than the average UK household (where two or three people occupy a medium-sized house), by April next year, according to new research by interactive investor, the UK’s second-largest DIY investment platform. 

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In contrast, small households, be it one or two people living in a small house or flat, could pay £2,218 a year more on energy bills by April, but £1,873 a year less than the catch-all figures for all households (see table below).

The calculations are based on energy price-cap predictions by energy consultancy firm Auxilione and energy usage figures for households of different sizes by UKpower. This does not take into account energy efficiency ratings among different properties.

Larger household paying £1,371 more than smallest 

Under the existing energy price cap, set at £1,971 per year on average, the typical larger household (occupying 4 or 5 people) is paying £765 more than the typical household (£2,736 vs £1,971), or £64 a month, and £1,371 more than small households (£2,736 vs £1,365), or £114 a month.

The energy cost burden is predicted to intensify further when the energy price cap is revised further in January, to £4,650 for households occupying two or three people according to Auxilione estimates, with larger households (4 or 5 people) paying £1,966 a year more, and smaller households (1 or 2 people) paying 1,558 less.

At present, the energy price cap is predicted by Auxilione to peak in April next year before waning from July.

Difference in energy bills by household size

Source: energy price cap projections from Auxilione (as at 15 August 2022). Calculations by interactive investor.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The nation is in the midst of a once-in-a-generation type energy crisis which is wreaking havoc on household budgets. Most of us have never spent as much as we do now on everyday tasks such as taking a hot shower and doing laundry – let alone heating our homes. With even higher energy prices than previously predicted inbound, household already living on a shoestring are running out of options and face financial breaking point.

“It is easy to focus on the headline energy price cap figure, but it is important to remember that no two households’ energy usage is the same. Under current projection and average energy usage, larger households could pay over £4,200 a year more than smaller households by April. But other factors like the energy efficiency and size of your home as well as energy consumption have a significant impact on the size of energy bills.

“The most important thing consumers can do to save on energy bills is reduce the amount of energy you use. If you reduce the amount of energy you use, you reduce the amount of units you’re paying for. As such, it is worth keeping tabs on your usage to get a better idea on what actions inflating your energy bills and where you could cut back as the cost of living continues to surge.”

Alice Guy, Personal Finance Expert, interactive investor, says: “We’re facing a disastrous winter for many families as the energy crisis bites hard. If the latest predictions come to pass, energy bills will reach £387 per month by January and £455 per month by April 2023. But that’s just the average. The shocking reality is that many families could be paying as much as £551 per month by January and £652 per month by April 2023.

“Families with two children are likely to use more energy than headline energy figure as it’s based on only 2.4 people, rather than 4 people, living at home. Many families may face a stark choice between staying warm and getting into debt.

“It could be a bleak winter for many older or disabled people as they are forced to turn off the heating this winter. We are likely to see some older people going into debt for the first time in their lives. And those relying on the state pension could spend 58% of their state pension on energy by April 2023.

“The financial cupboards are bare after a summer of rising food prices. Many have no savings to fall back, spending them to make up for lost wages during the Covid pandemic.”