Westminster Doesn’t Understand UK Energy Prices

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November 16, 2012 by Nash Riggins

With five of the UK’s Big Six energy suppliers having announced impending price increases, government officials and consumer watchdogs alike have condemned the domestic energy market for maintaining impossibly high prices; however, in truth, the UK’s fuel prices are actually relatively low.

In a comparative study of electricity rates by country, prices in the UK were completely dwarfed by many of its neighbours. Denmark topped the list, at over $0.40 per unit – and was followed by Germany at $0.31 per unit. In fact, at less than $0.18 per unit, it turns out that UK electricity customers are paying a minimum of 5-10% less than a vast majority of Europe.

Meanwhile, where domestic heating is concerned, the latest European Union figures estimate that UK customers currently pay an average of €0.0419 per unit – which is amongst the lowest rates in the EU. In fact, British customers pay 66% less for their gas than energy customers in nearby Sweden, who pay an average of €0.1226 per unit.

Subsequently, it cannot be denied that domestic fuel prices in the UK are relatively low when paired with that of its European neighbours; therefore, the question of rising fuel costs in the UK becomes not an issue of price, but rather one of affordability.

Since the economic downturn in 2008, wages simply have not kept up with rising prices that transcend any single industry. According to the Office for National Statistics (ONS), the UK’s unemployment rate is currently hovering at around 8.1%, and there are over 9m economically inactive citizens nationwide. Moreover, pay has risen 1.5% since 2011 – whereas in that same period of time, many homeowners have seen their dual fuel energy bills rise in excess of 19%.

In fact, domestic fuel prices have risen 35% in the past 5 years – with the average UK dual fuel bill rising by £417.11 per year. Meanwhile, the ONS reports that the average weekly income in the UK has remained relatively stagnant since the year 2000. In fact, the median full-time gross weekly earnings have fallen by 0.5% in the last ten years.  Annual figures for 2012 have yet to be accounted for; however, figures estimate a miniscule increase from 2010/11.

That being said, the ONS has already reported that total annual income in the UK has also remained stagnant in 2012 – falling by 0.3% since June. Meanwhile, the average UK energy bill will have increased anywhere from 6-11% by year’s end. As previously stated, said increases are highly unfavourable – yet they do indeed match a world-wide trend, and fall short of many of the increases that are taking place across Europe. Subsequently, the British government would do well not to waste taxpayer’s hard-earned pounds on wholesale price reviews – as MPs are currently pursuing – that will ultimately fail to spark sincere action on behalf of consumers.

Prices are inexorably rising in all sectors – be it the cost of natural gas or the cost of milk and bread – and unfortunately these increases in living costs cannot readily be avoided. Between 1998 and 2009, the Department for Environment, Food and Rural Affairs (DEFRA) reported that the average earnings of low-income households rose by 22%, to £208 per week before housing costs. Over that same period of time, UK food prices rose by up to 33%. When wages do not fall into line with this trend in price increases – regardless of what it is that’s increasing – numerous hardworking UK homeowners are inevitably bound to fall through the cracks and find themselves choosing between keeping warm or eating so as to make ends meet. Disproportionately low wages lay the foundation for a fuel poor society, and the UK government undeniably has a responsibility to its citizens in order to mandate a living wage with which these vulnerable citizens can live comfortably above the poverty line.

No enquiry at Westminster can legitimately affect the UK’s domestic energy market without either stifling competition or removing incentives for energy firms to keep prices in the UK relatively low, as they currently stand. Accordingly, if the UK government truly wishes to lend a helping hand to wary energy customers, it must do so in line with a wider, macroeconomic trend. Fuel prices are going to continue slowly rising all over the world – that will never end. Yet if Westminster yearns to increase the affordability of said supply at home, it must do so by increasing the living wage of British workers – otherwise, fuel prices across the country – along with the prices of other basic household costs – will only continue to slip further and further out of reach for homeowners.

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