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Energy bills ‘could overtake mortgages in five years’

Energy bills are rising so steeply that they could overtake mortgage repayments in parts of Britain in just five years’ time, the chief executive of supplier, First Utility, has claimed.

Ian McCaig issued the stark warning as he said energy policies must be reviewed to minimise the impact on bills and said consumers should think about turning down their heating to reduce costs. Critics have said that the Government’s environmental policies on windfarms and energy efficiency schemes, for example, are adding unnecessarily to the cost of bills.

“If things continue as they are, or even get worse, for some consumers in some parts of the country we will see energy bills overtake many other bills we have traditionally thought were the biggest items of non-discretionary spend,” Mr McCaig said.

“In fact, given that interest rates are low and look like staying that way it could easily be the case that over the next five to 10 years we’ll see energy bills even overtake mortgage costs for some consumers.”

Analysis by First Utility shows that UK dual-fuel bills have risen by an average of 8.5pc a year over the last five years to reach current levels of £1,420.

If they keep rising at the same rate, then by 2025 they would reach £3,761 – higher than current average annual mortgage repayments in places such as Stoke-on-Trent and higher than average repayments in Liverpool by 2029.

In Norwich and Birmingham, energy bills will outstrip mortgages of £5,100 and £4,990 a year respectively by May 2030.

Mr McCaig said First Utility has an “entirely different mindset” from other suppliers because “it wants consumers to actually use less energy”.

“People use heating really inefficiently,” he said. “We want to use consumption data to help customers use less.” He said he believed consumers could save 5pc to 20pc of their heating bills “just by being cleverer and not running the house hot”.

“When did we all start thinking it was all right to walk around our houses in the middle of winter with our shorts and T-shirts on? When did that become a sensible activity?” he said.

He said customers could save money by turning down their heating. “You have to be able to say, ‘Making that choice, this is how much that costs you’,” he said.

He stressed that he was not suggesting people should go back to being “huddled together” for warmth, and recognised that there were consumers in fuel poverty who could not just turn down their heating.

First Utility, which has about 125,000 customers, said last month it was raising its leading tariff by 18pc, citing a series of rising costs outside its control.

There is widespread agreement that energy bills will rise significantly to pay for hundreds of billions of pounds of new power plants Britain needs, but estimates vary as to how much.

Government figures suggest household energy bills will be about £76 higher by 2020. However, the official figures assume major reduction in energy consumption as a result of schemes such as the Green Deal scheme offering households loans to make homes more efficient.

“The Government is saying the impact of [added costs] will be alleviated by the measures that are being implemented to make the housing stock more efficient. It’s a big ask,” Mr McCaig said, describing the interest rate for the Green Deal as “pretty high” and suggesting alternative schemes may be needed. He also said the “archaic” energy market required reform as it was “not competitive enough” and left consumers paying too much.

“Bills are going up and there’s a bunch of stuff that can be done at a macro level to mitigate the impact of that. But, at the end, consumers are going to have to focus on the fact that maybe behaviours are going to have to change.”