Policy Design Challenges for Energy Affordability Following Price Hikes in the UK

Energy affordability is a persistent challenge for households which has recently become more pronounced. Using the UK Understanding Society household survey, we assess variables related to energy affordability with waves on either side of energy-price hikes which followed the onset of heightened geopolitical conflict in 2022. We find that the link between income and energy expenditure is strongest for the highest part of the income distribution. Key socioeconomic factors linked to problems paying energy and other bills are renting and an asset index, based on our linear probability and multinomial logit regressions. For households in the bottom asset quintile, renters are more likely to experience bill-paying problems by around 17 percentage points. Using Locally Weighted Scatterplot Smoothing, we find that problems paying bills are most pronounced for the bottom income quintile, while energy expenditure rises most from the fourth to the highest quintile. One policy implication is the need for greater consideration of persistent bill-paying problems such as with educational programs. Targeting support more precisely is also justified based on analysis of economic distributions such as further supporting the bottom asset or income quintiles and increasing support for renters particularly when they also have low asset levels. Composite policies supporting investments in energy sources beyond only solar panels would also have value.