So they went and did it and increased the energy price cap – not just increasing it, but increasing it big time. 📈
There’s plenty out there about how and why we got here but the question to address now is – what does it mean for you? 🤔
What is the energy price cap?
The energy price cap is a limit, applied by Ofgem, to how much energy companies are able to charge for gas and electricity. 🔌 And as of the 1st October, the maximum annual fee energy companies are able to charge “average households” was supposed to go up to £3,549 – but today (8th September), new PM Liz Truss has announced the cap will be £2,500 and will be held at this level for the next two years. This is an improvement but is nonetheless more than double the £1,042 price cap of February 2020 🤯 (you can read more about the £2,500 cap here).
Bills are going up 📈
Despite the announcement that bills won’t go up as much as originally expected, as of October 1st, your energy bill is likely to be much higher than it currently is. 🧾
If you live in university halls (or are planning to), find out if they will be increasing your rent to account for the rise or if they will be covering the increased cost themselves. And if they won’t be passing the cost onto you, how long will this last? (the cap will be reviewed again in January and will likely go even higher so the longer they commit to holding their costs steady, the better).
The same goes for student accommodation. Some companies have committed to keeping their current rent amounts stable 🙏 (meaning they will absorb the increased energy costs) – for example, Unite Students have said:
“We have guaranteed not to raise rents for 2022/23 academic year for those with signed contracts. Our all-inclusive pricing covers all utilities, insurance and high-speed wifi.”
But not everyone has made that commitment, so be sure to ask the question. ❓
If you live in private rental accommodation (or are planning to), you will likely see a cost increase. You need to ask yourself:
- Can you afford it?
- Can your flatmates?
- How will you make sure that bills are paid in full and on time ⏱ bearing in mind that non-payment, for whatever reason, will impact your credit score but also might put you in breach of your contract which could have other, more severe consequences? 👩⚖️
Energy is everywhere 🌍
Your bills aren’t the only ones going up.
Increased energy bills hit everyone. From restaurants and cafes who might need to reduce opening hours to literally keep the lights on, to producers of basics like bread 🍞 (it costs a lot to run an industrial oven all day), to transport 🚈 (public transport but also planes, trains and trucks that move goods around the country).
All these costs facing companies and organisations will have to be covered somehow – passing some of the cost along to consumers is inevitable.
Where energy goes, inflation goes
Energy price increases, even smaller than expected ones, will increase inflation (though this new cap should lead to a smaller increase). 🥛
Inflation, as you’re probably tired of hearing by now, is a measure of the increase in the price of goods and services consumed in the country. It is calculated based on a “basket of goods” 🧺 which includes things like food, clothing, medicine and yes, energy. In the UK, the Office for National Statistics (ONS) looks at what stuff costs last month and this month and calculates the difference.
So if energy costs go up, and if that pushes up the costs of everything else, then overall inflation goes up. 📈 Everything will feel more expensive – because everything will be. 💰
What happens next is anyone’s guess. 😕 But in terms of what the major banks are predicting, they disagree on what and when the peak will be but all agree it’s going to get worse before it gets better.
Raising interest rates is believed to tackle inflation
Raising interest rates is the normal tactic used to tackle inflation. 🤞
Increasing interest rates makes debt more expensive and that means people take money they would have spent on other things and use it to pay off debt (if your overdraft interest rate goes from 8% to 20%, you need to use more of your money to keep up with repayments).
This money is then not being spent so spending goes down and so prices should stop rising so quickly.
Does all this mean recession?
A reduction in economic activity is the basis for a recession and so a recession is a high-probability event. 🤷♀️
If all this sounds a bit crap to you, you aren’t alone. The build-up to tough financial periods often looks different but economic slowdowns often look the same once we actually reach them. We have also always come out of them – the question is, how long does a slowdown last and “how bad does it get”. ⚖️
What can you do?
As always, the recipe for surviving and thriving through economic tough times is the same and always comes down to taking care of the foundations:
- Be mindful of what you’re spending 💸
- Look at how much money you have coming in (you might apply for scholarships or maybe produce content online 📱)
- Beware of debt, what types you have and try not to get into more debt (e.g. by using Buy Now Pay Later) 💳
- Try to build an emergency fund – even a small amount will help you feel more in control. 🧘♀️
To help those who might be struggling to cope financially, Unite Students has created a free downloadable guide: ‘The climbing cost of living: Financial tips for students’.
It includes financial tips from us along with other useful information and support tools for students.