Essential bills “eating away” at incomes of lowest earners
As consumers brace themselves for the higher prices kicking in from tomorrow across bills including energy, water and broadband, those on the lowest incomes are running out of options, Citizens Advice warns.
Households in the lowest 10% for income already spend around two fifths (41%) of their earnings - after housing - on water, energy, broadband and car insurance bills. This compares to 11% for those on middle incomes, with those in the top 10% for income spending just 5%.
These latest findings come from the Institute for Public Policy Research (IPPR), as part of a Citizens Advice led-partnership with IPPR, abrdn Financial Fairness Trust and Policy in Practice looking at social tariffs.
Their research found single-adult households, and particularly those with children, are more likely than other groups to be spending 20% or more of their post-housing income on these bills, leaving them more exposed to price shocks.
If well-targeted social tariffs and bill support schemes were rolled out across water, energy, broadband and car insurance markets, the IPPR found that could save households hundreds of pounds a year. For example, if social tariffs reduced these essential bills by 25%, for those in the lowest 10% for income, it could bring in savings of around £13 a week or £680 a year. This would be equivalent to a boost of income (after housing costs) of around a tenth for a typical household in this group.
Sara’s story
Citizens Advice sees the difference social tariffs can make. The charity supported Sara [not her real name], whose disability, medical conditions and her son's needs make it vital for her to have a phone and internet.
She said: “Citizens Advice gave me advice on benefits, food banks and utility bills - how to cut down on them with social tariffs for water, phone and broadband. I can’t let go of my phone and the internet. It’s very important because of my illness. I’ve got a special telecom alarm for when I fall, so I need wifi in the house. It helps a lot.”
Dame Clare Moriarty, Chief Executive of Citizens Advice said:
“After years of cost-of-living pressures, households across the country are about to feel the extra shock of rising essential bills. But for those on the lowest incomes, these unavoidable costs are already eating away at their finances, leaving their budgets stretched beyond breaking point.
“Social tariffs could be an effective safety net and put money back in people’s pockets, but the government and providers must work together to make sure nobody struggling to make ends meet misses out.
“We want to see people eligible for bill support automatically enrolled to receive it. This change can’t come soon enough.”
Professor Ashwin Kumar, Director of Research and Policy at IPPR, said:
“Essential bills are leaving lowest earners with little room to breathe and causing huge anxieties. Well-designed social tariffs and bill support - across water, energy, broadband and insurance markets - could save households hundreds of pounds a year and provide a vital lifeline to some of the most vulnerable people across the country."
Deven Ghelani, Director of Policy in Practice, said:
“Leading utility companies are showing the benefits of data-sharing to support auto-enrolment and streamlined assessments. The government can take action today that makes straightforward access to social tariffs and bill support the core and expected response from utility companies to customers facing affordability issues.”
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Notes to editors:
In partnership with abrdn Financial Fairness Trust, the Institute for Public Policy Research (IPPR) and Policy in Practice, Citizens Advice is undertaking a research project to build a blueprint for how the government can best harness the potential impact of social tariffs to solve the cost-of-living equation for struggling households - in both the short and longer-term. Three reports are being released today:
Essential Potential, produced by IPPR on affordability in the essential markets, the potential for social tariffs to boost income and key considerations to targeting support to those who need it.
Barriers to Access, produced by Citizens Advice, details the hurdles Citizens Advice frontline advisers encounter when trying to get people the bill support they’re entitled to for broadband and water bills.
The Art of Possible report, produced by Policy in Practice, shows how leading utility companies are harnessing government datasets to automate social tariff take-up, and streamlining application processes to ensure people get the support they need.
Essential bills in this release refers to energy, water, broadband and car insurance bills. The project is focussed on these four bills as these sectors are regulated markets, where social tariffs or targeted bill support schemes either exist in some form already but need improving (energy, water, broadband), or are good potential candidates for bill support in light of recent price volatility (car insurance).
IPPR analysis for this research uses the Living Cost and Food Survey (LCFS) in conjunction with the IPPR tax-benefit model to understand how bill affordability is evolving over time. 2021/22 LCFS spending data for these bills was uprated based on components of the Consumer Price Index, to produce a now-cast of household spending across energy, water, broadband and car insurance in 2024/25. Now-casts of household incomes in 2024/25 were produced by combining LCFS 2021/22 data with IPPR tax-benefit model and OBR assumptions for earnings growth and changes in tax-benefit policy. These now-casts were then used to compare what proportion of after-housing income households were spending across energy, water, broadband and car insurance in 2024/25. ‘Middle income’ in this release refers to households in the 5th percentile.
IPPR analysis found around a third of single parent households with two or more children (32%) are spending 20% or more of their after-housing income on these bills.
This figure rises to almost 2 in 5 (37%) of single parent households with one child.
Amongst single working age households, over a quarter (27%) are spending this proportion on essential bills.
Social tariffs are currently available in the water and broadband markets, but, as part of the research partnership, Citizens Advice has looked at why uptake remains a big issue in its new Barriers to Access report. This is in contrast with the energy sector, where the Warm Home Discount (a form of targeted energy bill support) has wide uptake, due to it being delivered automatically to most eligible households.
Though water and energy have long been considered essential bills, the above research also found 82% of households in the lowest 10% for income have a direct internet connection, in a sign of how vital connectivity is for modern life,including for work, education and accessing benefits.
Citizens Advice energy research, Frozen in Place, finds 6.7 million people in Great Britain are living in a household in debt to their energy supplier. The charity is particularly concerned about households with children, where over one in three struggle to afford bills, rising to more than half of those on low incomes. Citizens Advice is calling on the government to urgently introduce more targeted energy bill support for those most in need.
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IPPR (the Institute for Public Policy Research) is an independent charity working towards a fairer, greener, and more prosperous society. We are researchers, communicators, and policy experts creating tangible progressive change, and turning bold ideas into common sense realities. Working across the UK, IPPR, IPPR North, and IPPR Scotland are deeply connected to the people of our nations and regions, and the issues our communities face. We have helped shape national conversations and progressive policy change for more than 30 years. From making the early case for the minimum wage and tackling regional inequality, to proposing a windfall tax on energy companies, IPPR’s research and policy work has put forward practical solutions for the crises facing society. www.ippr.org
Policy in Practice sets out to make government policy simple to understand, empowering people with the clarity and confidence they need to make positive decisions. As a team of policy experts, we have developed services including the BetterOff calculator on GOV.UK and the Low Income Family Tracker to help individuals and organisations to overcome departmental silos and help people to tackle rising living costs and build resilience.
abrdn Financial Fairness Trust funds research, policy work and related advocacy activities. It aims to tackle financial problems and improve the living standards of people on low-to-middle incomes in the UK. It is an independent charitable trust registered in Scotland. The Trust’s name recognises a historic donation from Aberdeen Group plc which led to the foundation of the Trust. The views expressed by the Trust and its funded partners do not necessarily represent those of Aberdeen Group.