It’s true to say the UK has become worse off. But some have felt the brunt more than others
When Huw Pill said, in a recent Columbia University podcast, that British people need “to accept that they’re worse off” the comments understandably hit a raw nerve.
With the country going through a once-in-a-generation cost of living crisis, it’s hardly palatable to be lectured by a very well-paid former Goldman Sachs banker that we all need to live a little less extravagantly.
But while Mr Pill’s comments were delivered with his foot firmly lodged in his mouth, there is an important truth lurking beneath them.
That truth is that the country as a whole is undoubtedly worse off as a result of the sharp increase in energy prices recently. Simply put, these days we import a lot of our energy, mostly in the form of natural gas.
And since those energy prices have risen so sharply, we are all having to pay more for our goods and services without earning more money in return. We – by which I mean the country as a whole – are all poorer.
You get a sense of this when you look at Britain’s national income – the amount of cash we’re generating here in the country – and subtract the amount of cash we consumers tend to spend each year.
The chart you end up with looks somewhat terrifying: a cliff-edge line of the likes we’ve never seen before. This is a pretty good illustration of how dramatically our collective net worth has fallen in the past year or so.
Yet saying the country as a whole is poorer is not the same as saying everyone is feeling the squeeze in quite the same way.
Indeed, look at the impact of this loss of collective worth and you see big differences. A few companies (and their employees and shareholders), notably energy producers, have done very well out of the price spike. Most have not.
In much the same way, the pain of higher prices is felt differently at different income levels. Inflation, remember, is the rate at which prices are going up each year.
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But the extent to which different income groups have leeway, either through their earnings or their savings, to shoulder that increase, differs greatly.
Study after study has shown that lower income groups are feeling the impact of higher energy and food prices considerably more than higher income groups.
Broadly speaking, those in the upper end of the income distribution (which, for what it’s worth, includes pretty much all Bank of England economists) have seen significantly smaller falls in their spending potential than those at the lower end. The country has become worse off, but some have felt the brunt of it more than others.
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These are what economists would tend to call “distributional” issues: how the benefits (or in this case pain) of an economic phenomenon are distributed out among the population.
Typically, the Bank of England tends to focus less on such issues than the big picture – that nationwide story about how we are, in aggregate, all worse off.
Not, it’s worth saying, because they’re heartless and don’t care, but because they view such challenges as something democratically elected politicians should be addressing rather than ivory tower academics in Threadneedle Street. Which is fair enough.
However, the cost of living crisis is two things at once: a big, macroeconomic phenomenon (the country has become poorer) and a distributional phenomenon (some people are feeling the pain more than others).
Mr Pill’s main mistake was not to be clearer that he was talking about the former issue, without being clearer that he wasn’t trying to pass judgement on the latter.
Still, it’s not the first time someone from the Bank of England has said something indelicate and insensitive at a time of nationwide economic insecurity – and it’s unlikely to be the last.
Business
Energy bills to rise again from January but spring falls to come, research firm Cornwall Insight forecasts
Energy bills are to rise again next year, according to a respected forecaster.
Costs from January to March are projected to rise another 1% to £1,736 a year for the average user, according to research firm Cornwall Insight.
The energy price cap, which sets a limit on how much companies can charge per unit of electricity, is also expected to rise, costing typical households an extra £19 a year.
It’s a further increase after energy costs rose 10% from October.
After the latest hike, there were hopes of a fall in the new year, but volatile wholesale gas and electricity markets are still above historic average costs.
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Prices have gone up due to supply concerns arising from Russia‘s war in Ukraine, and maintenance of Norwegian gas infrastructure.
But spring is expected to herald a reduction as is October 2025, Cornwall Insight said.
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Every three months energy regulator Ofgem revises the cap based on wholesale costs.
The official January price cap announcement will be made on Friday.
It comes as millions of pensioners lost their automatic winter fuel allowance payment after the government means-tested the benefit.
Meanwhile, Cornwall Insight’s principal consultant Dr Craig Lowrey warned “millions” of households won’t heat their homes to “recommended temperatures, risking serious health consequences” with bills on the rise.
“With it being widely accepted that high prices are here to stay, we need to see action,” he said, suggesting options like cheaper rates for low-income homes, benefit restructuring, or other targeted support for the vulnerable “must be seriously considered”.
The energy price cap system is being reviewed by Ofgem with possible changes to the standing charge coming over the next year.
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The long-lasting solution to high energy bills is the transition to UK-produced renewable power, the firm said.
“While there will be upfront costs, this shift is essential to building a sustainable and secure energy system for the future.”
The owners of Scotland’s only oil refinery have rejected a US-led approach about a possible bid for it months before its scheduled closure.
Sky News has learnt that a consortium said to be led by Robert McKee, an American energy industry veteran, wrote to Petroineos, the owner of the Grangemouth site, to express an interest in buying it.
The approach, which is understood to have been made earlier this month, was rejected by Petroineos, which is 50%-owned by the petrochemicals empire founded by the Manchester United FC shareholder Sir Jim Ratcliffe.
The consortium is understood to comprise The Canal Group, which is reportedly developing a green energy refinery in Texas, and Trading Stack, a Middle East-based commodities trader.
Mr McKee spent nearly four decades with ConocoPhillips, one of the biggest energy companies in the US.
Sources close to the situation said that Petroineos had rebuffed the offer in order to concentrate on a publicly announced plan to transform the century-old plant into a finished fuels import terminal.
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They added that the nature of the consortium’s approach had raised questions about its access to financing and expertise in operating an asset of this kind.
The Grangemouth refinery, which employs about 450 people, loses about £200m annually.
Its other shareholder is the state-backed Chinese energy giant PetroChina.
The site is due to close next year.
A person close to the consortium insisted that its financing was robust and said it would assess the feasibility of building a new refinery elsewhere in the area.
They added that the consortium had had “positive interactions” with trade union officials, and believed that there was scope to rapidly make Grangemouth’s refinery operations profitable.
On Monday, a spokesman for Petroineos said: “Since the Petroineos joint venture was formed 13 years ago, our shareholders have invested nearly £1bn in the refinery, only to absorb losses of £600m.
“Last week, the refinery lost £385,000 on average each day and we expect to lose more than £150m in total during the course of this year.
“We have not received any credible or viable bids for the refinery.”
A spokesman for the consortium declined to comment.
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