A new report argues that the UK should charge for energy based on household income, ensuring that wealthier individuals pay more while those with lower incomes pay less. The proposal, put forward by researchers from Foundational Economy Research, suggests that utility charges should be tied to income to reduce the disproportionate burden on low-income households.
Progressive energy charging
The report claims that under this system, 30% of higher-income households would see their bills increase, while middle-income households would pay roughly the same as they do now. It states: “Energy justice is about the poor paying less and the rich paying more in a considered scheme where, for example, the charge per kWh is varied upwards according to household income.” The researchers argue that this approach ensures distributive justice for all income groups.
The report further notes: “Higher bills are not attractive for regulators nor politicians if they increase an already heavy charge on low-income households. Thus, more progressive charging for energy can also be a major contributor to environmental and intergenerational justice insofar as it facilitates investment in renewable electricity generation and updated electricity grid distribution and gas storage.”
Energy bill forecasts
The call for reform comes as energy bills are predicted to rise sharply this July due to the ongoing conflict in Iran. Analysts at Cornwall Insight forecast that the price cap could increase to £1,837 a year. In early March, the firm had warned that annual household energy bills could surge by £332 to £1,973 from July when the next cap comes into effect. However, the lower-than-previously-forecast rise signals some easing back in wholesale energy costs since the start of the war on February 28.
The current price cap stands at £1,641 a year, with Ofgem set to announce its July price cap level by May 27. The Government has stated it will consider further targeted support as part of contingency planning. Earlier this week, the Government also extended upcoming electricity bill support to 10,000 firms, offering some respite to companies not covered by the household energy price cap.
Wholesale costs and global factors
Wholesale energy costs are not expected to return to pre-war levels until the Strait of Hormuz is reopened. The strait, through which a fifth of the world’s oil and seaborn gas is carried, has been blocked due to the conflict. The disruption to supply, combined with attacks and stoppages at energy infrastructure across the Middle East, has sent gas prices soaring and crude oil prices surging to as high as $120 US dollars a barrel.
