Hitting the Rationing Wall
Hitting the Rationing Wall 547 KB
Ever since the Russian invasion of Ukraine in 2022, households across the UK have been adapting their budgets to cope with persistently high energy bills. Even though prices have steadied, they’re still 43% higher in real terms than in 2021.*1 Now, with another energy shock due to the conflict in Iran, households will once again attempt to adapt their budgets to keep up with rising prices.
In economics, energy can be described as a "rigid necessity”. This means that it is an essential good which doesn’t have a like for like substitute. Many low-income households live near to a physical subsistence floor, whereby they are already consuming near the absolute minimum required for basic living. Any additional reduction could carry negative consequences.
When energy costs rise, low-income households can be caught in an elasticity trap. Unable to reduce their energy as they are already using the minimum, they are forced to absorb the shock by rationing non-energy essentials like food, rent, and healthcare, or falling deeper into a negative budget. The mental load of balancing budgets and the tough decisions households have to make can be forgotten in headline inflation drops and price cap announcements. This is especially true considering Ofgem’s recent changes to the Typical Domestic Consumption Values (TDCVs), which reduces headline bill figures even though unit rates remain stubbornly high.
In this paper, Citizens Advice’s latest research and analysis uses the idea of economic elasticity to show how other essential bills are affected when energy prices rise. With half of our debt clients now living in a negative budget (which means their income cannot cover their essential living costs),*2 they have no flexibility to absorb price rises and are therefore forced further into deficit. Since 2022, Citizens Advice’s average debt client’s deficit has increased by 45%, from £276.02 to £388.92 today. With a nearly £400 deficit each month, these households are forced to make impossible decisions between using essential energy or buying food or other essential items.*3
Our latest affordability survey, commissioned by BMG, found that 74% of households have taken at least one action in the past year to save energy or the cost of their energy bill. The most common actions being using less heating and hot water (63%), reducing household energy use -for example kitchen appliances, washing machines or turning off the lights - (47%) and reducing the amount spent on food (33%).
If prices rise again in the next year, nearly a quarter (23%) of households said they would turn off the heating or hot water to manage the increase. Nearly a third (31%) said they would need to cut back on food spending, and one in five (20%) said they would need to run down savings to pay for essentials.
While many households can safely reduce their energy costs, for others rising prices are causing their household budgets to break. Our survey found that over a third (37%) of households are worried about affording their energy this winter.
In order to better support households, Citizens Advice are calling on the Government to implement the following:
Take further action to remove policy costs off of electricity bills by removing the remainder of the Renewable Obligations (RO) scheme and all of Feed-in-Tariff (FIT);
A reformed, tiered Warm Home Discount (WHD) that provides increased levels of support based on a household’s energy needs;
Urgently deliver the much delayed Debt Relief Scheme (DRS).
The Government has a limited time period to get support to households ahead of this winter. If they take these actions now, they can lower the cost of electricity for everyone while also protecting households most at risk.
*1 Gov.uk, Domestic energy price indices, 30 July 2026
*2 Citizens Advice uses the term negative budget for when a person’s income does not cover their essential bills, even after meeting with an advisor
*3 Citizens Advice commissioned survey by BMG Research. The survey ran between 23rd-28th July 2026 and reached 4,556 respondents.