From insurance to fuel: where your money really goes on household bills

Who gets a cut when you hand over the cash for outgoings like energy, home insurance and flights?

Ever wondered who gets a cut when you pay your bills?

We spend a whopping £3,987 a year on household bills according to Santander but when the money’s dished out it can go in lots of different directions. 

So we've taken a look at who exactly gets a share of your cash when it comes to five outgoings most households will face in a year.

Home insurance  

Whether you shop around when the renewal quote comes through or just pay up, do you know what makes up your home insurance premium price?  

According to Co-operative Insurance 36% of us don’t understand how it’s made up, so it has broken down the costs.

Here’s how the numbers stack up for buildings insurance.

As you can see the biggest chunk of your premium, at 59%, goes towards claims; while 27% goes on ‘running costs’. That’s everything from wages to office space and admin. Insurance Premium Tax, (IPT), a Government levy on insurers accounts for a fixed 9.5% (rising to 10% in October), and Co-op’s profit is 5%. 

Based on the average annual buildings policy price of £255 (according to the Association of British Insurers), this means over £150 goes towards claims, £69 on running costs, £24 on IPT and £13 in profit.

Here’s how the numbers stack up for contents insurance.

With contents insurance 41% goes on claims, 49% on costs, 9% on IPT leaving just 1% in profit. 

Based on the average contents policy which comes in at an average £138 a year that’s just £1.38 earned per policy in profit for Co-op.

Energy bills  

We all know energy bills aren’t cheap and the average annual ‘dual fuel’ bill comes in at £1,147 according to British Gas. But as you can see from the breakdown below the money goes towards more than just profits!

When it comes to splitting up your payments; the bulk of your annual bill, goes on ‘outside’ costs.

The biggest chunk at £456 goes on wholesale costs. These prices aren’t something the energy suppliers can control although most suppliers do a kind of ‘bulk buy’ deal by agreeing prices many months in advance.

Getting the energy into your home doesn’t come cheap either. Again energy suppliers say they’ve no control over these costs as they don’t own the cables or pipework.  These costs are fixed by the transmission and distribution companies; which in the main is down to National Grid. 

Some of the money you pay also goes towards reducing the country’s carbon emissions and funding renewable electricity projects across the UK. This is a legal requirement for energy suppliers under the Energy Company Obligation Scheme, depending on the size of their business.

And as with any business there’s running costs to factor in too. British Gas say this includes anything from developing new apps, recruiting engineers and paying staff. 

Finally, when it comes down to profit, British Gas say it takes just £55 a year, (based on the average household energy bill of £1,147); that’s under 5% of the bill.

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Fuel

Thought greedy petrol stations were raking it in every time fuel prices go up? Here’s how the costs really stack up on every litre of fuel.

Source: petrolprices.com

Based on the average price of £1.08 a litre, tax accounts for the biggest slice at just under 76p. This includes both ‘fuel duty’ at just under 58p and 18p in VAT. The next biggest cut at 27p goes goes on buying crude oil and turning it into fuel'. 

Costs, wages and delivery account for another 4p a litre; that’s under 4% of the price you pay and finally just a penny in every litre is profit for the petrol station and fuel company.

Water bills

The average household water bill across England and Wales is £389, according to Water UK. This includes the supply of fresh water and sewerage, which covers the removal of waste water and drainage.

If you’ve got a water meter, you’ll be billed for every drop you use, and if you don’t have a meter, charges are based on the ‘rateable value’ of your property along with a fixed charge to cover billing and customer service costs.

The pie chart below provides a breakdown of where your money goes for Southern Water.

Running costs account for the biggest chunk of the bill according to Southern Water. Based on its average annual combined water and waste bill of £411, this works out at £113 a year with just 4p of the ‘average’ daily bill of £1.12 going on profit which works out at around £15 a year.

Flight tickets

Ok so this isn't exactly a household bill, but since many of us take a holiday at least once a year we thought we'd include the cost breakdown for flights too.

Flight prices must, by law, include any compulsory taxes, fees and charges according to the Civil Aviation Authority.

To illustrate this, Travelzoo has provided us with a breakdown a typical return ticket from London to New York with British Airways which would set you back around £690.

As you can see over 20% of the price instantly goes on tax which includes Air Passenger Duty and Passenger Service Charge. And with some taxes, like Air Passenger Duty, which is levied on flights departing from UK airports, the further you fly, the more you pay. Depending on where you’re flying too; local taxes like arrival and departure tax may be factored into the ticket too.

When it comes to running costs, fuel, staff wages and marketing account for nearly 80% of the price and according to Travelzoo airlines may pocket less than 1% in profit, based on a £690 return ticket to New York.

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