MNI INTERVIEW: UK Energy Relief Could Extend Beyond Shock

A lasting increase in energy bills due to the Iran war would be likely to push the UK government to continue any support to poorer households for some time after the worst of the conflict fades, according to a senior economist at the Resolution Foundation.

The final cost of a support package will depend on where prices finally settle and the duration of the conflict, Simon Pittaway said in an interview, noting also that energy bills may settle at a higher level in the medium term, as occurred after the outbreak of the Ukraine war.

Chancellor of the Exchequer Rachel Reeves told Parliament on Tuesday that she would learn from the mistakes of the previous government’s support for energy bills from 2022 by targeting poorer households, in line with previous recommendations by the Resolution Foundation, which proposed different options for mitigating the energy price hit, each costing about GBP4 billion.

"It may be that if we can do the social tariff stuff in a fairly well-targeted and efficient way, and the new steady state [in energy prices] is sufficiently high, the energy needs become a sort of dominant part of household expenditure in the way the housing costs are that we do need to maybe have a bit of a bit more targeted support," he said, although "any cost at this point is a bit speculative," he said.

UK households also owe far more in unpaid power bills than in 2022, Pittaway noted, with his research  finding that the aggregate stock of energy arrears has more than doubled in real terms since the pandemic, from GBP1.7 billion in Q1 2019 to GBP4.2 billion in Q1 2025.

"Household energy debt is already kind of at historically higher levels," he said, leaving households in a "more strained starting point than the previous time we had a big energy shock."

The Resolution Foundation, whose previous director Torsten Bell is Parliamentary Secretary for the Treasury and Under-Secretary for Pensions, also recommends targeted debt forgiveness.

ELEVATED HOUSEHOLD ENERGY DEBT

"We don't think that kind of across the-board wiping of energy debt is the right way to go," Pittaway said, adding that energy market regulator OFGEM is launching a scheme for targeted debt relief for people on low incomes who are struggling to repay their bills.

"That's the sort of more targeted approach that I think we'd favour, rather than going the whole hog and wiping energy debt across the board because of those intensive effects," he said.

Nonetheless, "even a well-targeted scheme is unlikely to mop up every single bit of financial pressure that comes from high energy prices."

INCENTIVES

Another reason for the more targeted support is that it preserves incentives to reduce energy use for most households, Pittaway said.

"That's one of the reasons why we think that should not do a rerun of the [Energy Price Guarantee], where you cap the price for everyone and then you know you're distorting that price signal for all households." (See MNI INTERVIEW:  UK Energy Price Aid Could Be Cheaper This Time)