Older generations will face the greatest income squeeze from surging energy costs this winter – but young people will struggle most to afford their bills

Older people will spend a higher share of their income on energy bills this winter than other age groups – with the over-75s expected to spend 8 per cent of their total household income on bills, even with significant government support – but younger households are most at risk of being unable to pay bills or falling into arrears, according to new research published today (Monday) by the Resolution Foundation.

The Foundation’s annual Intergenerational audit for the UK, funded by the ESRC Connecting Generations research programme, looks at the cost of living crisis facing Britain today – from rising energy bills this winter, to rising mortgage costs, and the possibility of falling house prices and higher unemployment next year – through an intergenerational lens.

With households across Britain starting to turn their heating on as winter approaches, the authors note that all generations will be forced to spend more on their energy bills this year.

Even with welcome Government support, from lump-sum payments for vulnerable households to the £400 Energy Bills Rebate and the Energy Price Guarantee, the typical household energy bill will be 83 per cent higher in 2022-23 compared to pre-crisis levels.

Middle-aged households – those headed by 40-49-year-olds and 50-64-year-olds – will see the largest increases in cash terms, with typical annual energy bills for these groups rising by over £1,000 on pre-crisis levels, to around £2,260 and £2,320 respectively, in 2022-23. However, this in large part reflects that such households tend to be larger than older or younger households.

It is older generations, in particular the over-75s, who will be forced to dedicate a higher share of their income to paying for energy bills in 2022-23 (8 per cent up from 5 per cent) than younger age groups (5 per cent for those under 50).

This is partly driven by the fact that people in this age group are more likely to live in energy-inefficient homes – just a third of households headed by someone aged 65 and above live in homes with an (energy efficient) A-C EPC rating, compared to half of households headed by someone aged 16-29 – and partly by the fact that older people tend to live in larger, harder to heat homes.

But while older households face a bigger income hit from higher energy costs this winter, the Foundation notes that it is younger generations, who have already endured years of stalled pay growth and high housing costs, who may struggle most to cope, for two key reasons.

First, younger households are up to four times more likely to be on pre-payment meters, preventing them from spreading energy costs out evenly throughout the year. The Audit finds that 19 per cent of households headed by a person aged 16-29 are on a pre-payment meter for their electricity and 18 per cent are on a pre-payment meter for their gas, compared to 5 per cent and 4 per cent of households headed by someone aged 65 and above.

Second, younger people are less likely to have assets and savings to draw on as coping mechanisms for responding to rising energy costs. While over four fifths of people aged 65-74 and 75 and above say that they would be able to use money from their current account or draw on existing savings to cover an unexpected expense, less than half of 20-29-year-olds are in the same position.

The Foundation also notes that there has been an intergenerational skew to energy bill support policies announced by the Government, with those aged between 40 and 64 set to benefit the most from the total package of cost of living support measures announced this year, primarily because cuts to National Insurance contributions do not benefit those over the state pension age.

But while over-65s are expected to gain the least from the support measures announced this year, they have gained from longer term changes. The Foundation finds that while non-pensioners are £816 a year worse off on average as a result of changes to working-age benefits since 2010, pensioners are £666 a year better off due to the Triple Lock.

Molly Broome, Economist at the Resolution Foundation, said:

“All generations are facing difficulties from the growing cost of living crisis – but different generations are experiencing it in very different ways.

“Energy bills are set to rise by over 80 per cent this winter, compared to pre-crisis levels.

“The middle-aged will face the largest bill rises and older generations will see the greatest squeeze on their incomes due to their larger and less energy-efficient homes.

“But it’s younger people who are most likely to struggle to pay rising bills, because they are less likely to have savings to fall back on – and will therefore be forced to either rely on older friends or family members, or potentially go without heating during the coming cold weather.”