How could Brexit hit your energy costs?

Posted 15 July 2016 by Helen Christie

Brexit is the biggest topic of conversation right now, not just in the UK, but throughout Europe…

The UK’s withdrawal from the European Union is undoubtedly going to hit consumers’ wallets in many different areas, from food through to travel. What’s more, it could also cause the price of energy to shoot up.

Energy costs are already a huge consideration for homeowners, so Payingtoomuch.com has looked at why this rise may occur, and is there anything the consumer can do to protect against it?

Why will energy prices rise?

There’s no crystal ball, however all the signs point to the fact that the EU exit will see energy prices rise. But why is this? It all has to do with the value of the pound, which has been sharply declining in the wake of the referendum result. This decline, in a nutshell, means that importing will become much more expensive for UK individuals and companies, including the various energy companies.

Why should the energy industry be concerned by importing costs though? It’s because the UK currently imports a huge amount of energy from Europe, in order to satisfy the high demand from the UK’s population. If the UK’s power companies are having to pay higher rates for this energy, you can guarantee that they’ll pass these higher costs onto their customers, thus leading to increased energy bills.

Imports are also important in another way as well, as the UK’s energy infrastructure is supported by many imported materials and other goods, especially from China. So, it will now cost more for this infrastructure to be maintained to an acceptable level. Once again, these costs will find their way to the consumer.

Could the government intervene?

There is one way in which the government could negate the effect of energy price rises, and it comes with the eradication of VAT on energy – something that would become possible thanks to the lack of regulation from the EU. VAT on energy is currently at 5%, therefore meaning consumers would benefit by this much if it were removed. The chances of this happening though are almost zero…

Should the government abolish the 5% rate of VAT on energy, they would lose out massively. In fact, it is estimated that it would cost them around £1.5bn in lost revenue. In this period of financial instability, the government simply can’t afford to take risks like this. This is why it is incredibly unlikely they’d want to lose this invaluable source of income.

Even if they did decide to abolish the rate, they would have to make it up elsewhere, meaning that they’d either need to cut back on services, or raise taxes in different areas. So, the public would still end up paying in one way or another.

How to protect against rising energy costs

If energy prices rise, they’ll rise across the board. This means that you’ll be unable to escape these price rises, and will have to find some extra cash to pay for them. You can limit the impact they have though, simply by ensuring that you’re on the very best energy tariff around. 



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