15 July 2011 | Angus Hutchison
Carbon, Energy, Europe

 

Incoming energy price rises could have a negative effect on British businesses as consumer spending is likely to take another hit from expensive household bills.

This is likely to put further pressure on businesses as consumers’ spending takes a further squeezing. Economic growth in Britain has been flat since the recession. Continuing job losses, low wage increases, inflation and VAT rises have all contributed to consumers’ wallet pain.

The Department for Energy and Climate Change (DECC) released statistics yesterday (14 June) showing that one in five UK households are now classified as being in “fuel poverty”.

Fuel poverty means that a household needs to spend more than 10 per cent of its income on fuel in order to maintain an adequate standard of living. According to the DECC report, 700,000 more families fell into fuel poverty in 2009, taking the national total to 5.5 million.

Last week British Gas announced it would be raising its gas prices by 18 per cent and electricity bills by 16 per cent in August. Scottish Power will increase its gas prices by 19 per cent and electricity costs by 10 per cent. Wholesale gas prices are being blamed as other large UK power companies look likely to make similar increases.

Last month saw consumer spending fall back to recession levels after two quarters of sliding retail sales. Household spending makes up around 60 per cent of the UK’s GDP and, as further households fall into fuel poverty as a result of rising prices, the outlook does not look positive.

This comes at a time when export sales are down due to the eurozone crisis and three separate surveys released by the British Cambers of Commerce, Deloitte and accountancy firm BDO have all suggested that business confidence is very low.

Speaking to the Guardian on Monday (11 July), Deloitte chief economist Ian Stewart said: “There is a growing belief that the upswing in corporate revenues is likely to slow over the next 12 months.”

Several large and well-known high-street companies also went into administration at the end of last month, including Jane Norman, TJ Hughes and parts of Habitat.

Audrey Gallacher, Director of Energy at Consumer Focus yesterday (14 July) said: ‘Worryingly the predictions for fuel poverty in 2011 are likely to be an underestimate as four of the Big Six have yet to announce their expected price rises.

“If these are in line with the increases announced from British Gas and Scottish Power around 12 million people, or 6.4 million British households, are likely to be in fuel poverty when the latest price rises hit.

In order to help homeowners to lessen the impact of rising energy costs and meet carbon reduction targets in the UK, the government plans to launch the “Green Deal” in October 2012 as a way of making homes more energy efficient.

Households account for 27 per cent of the UK's carbon emissions and the Green Deal will also create jobs through private companies competing to improve the efficiency of homes.

The Deal involves homeowners taking out loans to improve the energy efficiency of their homes. They would then pay back these loans in the form of extra charges on their energy bills, on the understanding the Deal is a long term investment with noticeable savings created.

The Energy Bill containing the Green Deal legislation has been put on hold until after the parliamentary summer recess but Energy Secretary Chris Huhne has said it is still on track to meet the 2012 planned deadline.

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