Research and analysis

Analysis of the impact of UK government energy and cost of living support measures on households in Scotland, Northern Ireland and Wales

Published 26 June 2023

Applies to Northern Ireland, Scotland and Wales

Executive summary

Department for Levelling Up, Housing and Communities (DLUHC) analysis shows that the UK government has provided a package of measures that will be worth around £7 billion in Scotland, £3.7 billion in Wales, and £2.1 billion in Northern Ireland to help households and businesses to weather the impact of soaring energy prices in 2022 to 2023 and 2023 to 2024. All households were provided with support, but the poorest households gained the most. The average level of support was most generous in Scotland, Wales, and Northern Ireland. Yearly disposable incomes of the poorest tenth of households in Scotland, Wales, and Northern Ireland were supported by the measures by over 20%. That’s the equivalent of the UK government providing the poorest households in Scotland, Wales and Northern Ireland 2 extra months of net pay. The average household in Scotland, Wales, and Northern Ireland gained between 7.0% and 8.8% of their annual income – the equivalent of around 1 extra month of net pay.

1. Background

Energy prices have risen to unprecedented levels during the winter of 2022 to 2023 because of the war in Ukraine. In response, the UK government has implemented a £78 billion package to support households and businesses through the cost-of-living crisis . This is one of the largest volumes of money the government has spent on any policy programme in such a short space of time since the end of World War II. The measures that were implemented were:

• Energy Price Guarantee (EPG): The maximum amount energy suppliers can charge households for a unit of energy is normally limited by the Ofgem Price Cap. In recent times, however, the price cap has risen to unprecedent levels and therefore the UK government has provided a support rate discount to all households with a domestic gas and/or electricity contract to bring the amount a typical household can pay down to around £2,500 per year in Great Britain and around £2109 in Northern Ireland. The UK government has effectively covered the full difference of what households would have paid under the price cap and what they pay under the EPG. This measure forms around a third of the total cost of the UK-wide energy support package (£27 billion UK-wide).

• £400 discount off all households’ energy bills (EBSS): All households were provided with monthly payments through their energy suppliers to help with energy costs. Over the whole course of the scheme each household received £400 of support. The £400 was raised to £600 support to help with energy costs for all Northern Ireland households: Households in Northern Ireland received a single combined payment of £600 through their electricity supplier, to help with energy costs through the Energy Bills Support Scheme and Alternative Fuel Payment Northern Ireland (EBSS AFP NI) over winter 2022 to 2023. All households in Northern Ireland received the Alternative Fuel Payment regardless of how they heat their homes, due to the widespread use of home heating oil. This measure is estimated to have cost UK government around a £11.9 billion UK-wide.

• Cost of living payments to households: One-off payments were awarded to people on means-tested benefits. As part of this, £2.9 billion was also spent in England to decrease households’ council tax bills. This measure does not apply directly in Scotland, Wales, and Northern Ireland but the UK government provided extra money to the devolved administrations to implement a variant of the scheme through Barnett consequentials. Overall, these measures form around a third of the overall UK-wide package (£25 billion UK wide).

• Energy Bills Discount Scheme (EBDS): The Energy Bills Discount Scheme (EBDS) replaces the Energy Bill Relief Scheme (EBRS), which ended on 31 March 2023 and had paid out around £7 billion in support that equated to around £35 million a day, significantly cutting energy costs for businesses. The EBDS will continue to provide a baseline discount to eligible non-domestic customers from 1 April 2023 to 31 March 2024. Under EBDS a higher level of support will be provided to domestic customers on Heat Networks and businesses in sectors identified as being the most energy and trade intensive industries (ETIIs). EBDS strikes a balance between supporting businesses over the next 12 months and limiting taxpayer’s exposure to volatile energy markets. Both EBRS and EBDS have a Non Standard Cases element, allowing eligible energy providers and customers with unlicensed supplies that are pegged to a wholesale price, to be provided with equivalent support.

Most of these measures apply UK-wide and therefore have provided substantial support to households in Scotland, Wales, and Northern Ireland. Our analysis estimates the total cost of the measures and impact on household incomes in each of the home nations. Although energy is devolved in Northern Ireland, the ongoing absence of a Northern Ireland Executive and the urgency of the cost of living situation following the outbreak of war in Ukraine led the UK government to intervene to support households and businesses in Northern Ireland.

2. Methodology

Total cost of the schemes in Scotland, Wales, and Northern Ireland

To estimate the total cost of the schemes in each of Scotland, Wales and Northern Ireland DLUHC officials apportioned the total UK-wide cost of £78 billion based on forecasts from the Office for Budget Responsibility’s March 2023 Economic and Fiscal Outlook and the share of households living in each UK nation.

Impact on household incomes

Low-income households spend a larger proportion of their income on energy. As a result, they are more exposed to increases in energy prices. DLUHC officials were therefore interested in answering the following questions: How much support did households receive across different deciles of the income distribution (in cash terms and as a percentage of disposable income)? And how did this vary by UK nation?

To answer these questions, DLUHC officials took the following steps:

1. Officials calculated the average level of support per household from the EPG and the £400 discount off household energy bills.

2. Officials used household and individual level data from the Living Costs and Food Survey (LCFS) for 2020. This period also includes the impact of Covid-19, but they understand the ONS have put provisions in place to make the data comparable across years. Using this data, officials:

a. Grew equivalised disposable household incomes using the OBR forecast for average earnings growth to get an approximation of income for 2022/23.

b. Calculated equivalised disposable household income by decile of the distribution in each UK region/nation.

c. Identified individuals who are likely to receive Cost of Living payments. An individual is assumed to have received a cost-of-living payments totalling £1,550 for 2022 and 2023 if they get any of the following benefits or tax credits (see details here):

• income-based Jobseeker’s Allowance (JSA)
• income-related Employment and Support Allowance (ESA)
• Income Support
• Pension Credit
• Universal Credit
• Child Tax Credit
• Working Tax Credit

d. Officials then summed up the total cost of living payments received by each household and calculated the average cost of living payment received by decile of disposable household income.

3. DLUHC officials added up the average energy support (assuming it is the same for all deciles) and average cost of living payment by decile. They then divided this figure by equivalised disposable household income for each decile and region. This gave officials the volume of support as a percentage of disposable income for different deciles of the income distribution in each nation.

3. Results

Total costs

DLUHC estimates show that in total the UK government could spend around £7 billion in Scotland, £3.7 billion in Wales, and £2.1 billion in Northern Ireland over 2022 to 2023 and 2023 to 2024 combined. DLUHC display the combined value to show the expenditure on the full package over time, which includes energy support measures affecting both households and businesses. The breakdown by nation and category of measures is detailed in the chart below:

Chart 1: Estimated total UK government expenditure on all support measures (nominal terms), 2022 to 2023 and 2023 to 2024, by nation

Note: Cost of living payments also includes a rough approximation of Barnett consequentials that people in Scotland, Wales and Northern Ireland benefit from and that flow from the council tax rebate implemented in England.

Source: DLUHC calculations based on OBR March 2023 EFO

Impact on household incomes

DLUHC results show that the UK government has provided the average UK household around £1,865 of support. The average household in Wales gained £1,914, compared to £1,850 in Scotland and £2,221 in Northern Ireland. The differences in cash terms support stem from the different distribution of benefit recipients by decile of equivalised disposable household income by nation. This then drives how many households receive cost of living payments in each nation. In Northern Ireland, the volume of support per household is higher due to differences in the design of the EBSS scheme (direct cash payments to households for help with energy bills are more generous).

Chart 2: Total cash terms modelled level of support to households by decile of equivalised household disposable income and UK nation

Source: DLUHC calculations using LCF data

The poorest households are the ones most affected by rising energy costs and higher level of support was thus targeted at these households – mainly through cost-of-living payments for those on means-tested benefits. The average level of support for the poorest tenth of households in the UK was £2,297. The level of support for the poorest households was higher in the nations: £3,044 in Northern Ireland, £2,482 in Wales, and £2,445 in Scotland. The main reason for this may be a higher concentration of people receiving benefits amongst the poorest households in Scotland, Wales, and NI relative to the UK.

The total support is worth around 6.6% of annual disposable income for the average UK household. This is the equivalent of the UK government providing almost one extra monthly net paycheck for the typical household last winter. The typical household received support equivalent to 8.8% of annual income in NI, 7.6% in Wales, and 7.0% in Scotland.

The level of support as a share of income was even higher for the poorest tenth of households – see Chart 3 below. The UK government propped up the incomes of the poorest households in Northern Ireland by 24.1%, by 22.0% in Scotland, and by 20.3% in Wales. This compares to a 19.2% boost for the poorest tenth of UK households.

Chart 3: Total modelled level of support to households as a share of annual disposable equivalised household income, by decile of income and UK nation

Source: DLUHC calculations using LCF data

4. Limitations and caveats around the analysis

For calculating the impact on household incomes, DLUHC officials only focussed on the EPG, the EBSS (£400 discount off household energy bills), and cost of living payments to households on means-tested benefits. They did this because these measures have the most direct impact on household budgets. Other measures, such as support for businesses will also affect households indirectly by limiting the extent of price rises passed on to customers. However, for simplicity officials focus only on measures with a direct impact on household incomes through reserved spending. In the impact on household incomes, they have not included the £150 disability cost of living payment due to data availability in the Living Costs and Food survey. They have also not included the impact of the council tax rebate that was implemented (in some form) by the devolved administrations using Barnett consequentials.

Officials do not explicitly model the share of households not connected to the gas grid. Around two thirds of households in Northern Ireland use heating oil rather than natural gas as their main source of domestic heat. These households benefit less from the EPG, but the UK government has put in place the Alternative Fuel Payment to support them. Due to the higher prevalence of off-grid households in Northern Ireland, this payment was made to all households in Northern Ireland regardless of whether they are connected to the grid.

A further caveat is the uncertainty around the point-based estimates of the impact of the measures on household incomes when disaggregating to region and decile of the income distribution due to sample size in the Living Cost and Food Survey. An example where this has an impact is the data for Wales, where the survey data has a higher concentration of benefit recipients in the 1st decile relative to the 2nd decile, which creates a slight dip for the overall level of support for households in the 2nd decile in Wales, relative to the 1st and 3rd deciles. These estimates should thus be viewed as indicative.

Annex: Indicative estimates of the cost of measures in Scotland, Wales, and Northern Ireland, broken down by type of measure and financial year

Energy bills support	2022-23	2023-24	Total for 2 years
Scotland	3.71	0.49	4.20
Wales	1.99	0.26	2.25
Northern Ireland	1.14	0.15	1.29

Cost of living payments	2022-23	2023-24	Total for 2 years
Scotland	1.07	1.09	2.17
Wales	0.58	0.59	1.16
Northern Ireland	0.33	0.34	0.66

Other support measures	2022-23	2023-24	Total for 2 years
Scotland	0.40	0.22	0.62
Wales	0.21	0.12	0.33
Northern Ireland	0.12	0.07	0.19

Total spending	2022-23	2023-24	Total for 2 years
Scotland	5.19	1.80	6.98
Wales	2.78	0.96	3.74
Northern Ireland	1.59	0.55	2.14

Note: Figures are in £ billion. Cost of living payments also includes a rough approximation of Barnett consequentials that people in Scotland, Wales and Northern Ireland benefit from and that flow from the council tax rebate implemented in England.

Source: DLUHC calculations based on OBR March 2023 Economic and fiscal outlook (EFO)