John Healey has unveiled a package of support for households being buffeted by “global economic storms”.
“I’m setting a new course to get energy costs down in line with Europe,” the chancellor said in his maiden budget. In the long term, he hopes that changes in how Britain covers the cost of renewables and grid upgrades will “drive down all aspects of energy bills”.
British households face some of the highest energy charges for three years, with the war in the Middle East driving up oil and gas prices.
Under the government’s price cap, average dual-fuel bills are £1,700 a year and could rise to more than £2,100 a year from January, according to industry forecasts.
So what has the chancellor offered hard-pressed households to help them through the coldest months of the year? And will it be enough to lower gas and electricity bills?
The £100 ‘household energy payment’
The government’s biggest bet on offering “breathing space” to struggling households this winter is a one-off payment of £100 in January for 20m households in council tax bands A to D. It is also the measure most likely to deliver real benefit for those in need.
The £2.6bn “household energy payment” will go directly into bank accounts to “take the pressure off in the coldest months and see people through to the spring”, according to Healey.
Martin Lewis, the founder of MoneySavingExpert.com, said households could face a 25% cost increase from January and shouldn’t expect to feel better off than they do today.
Officials are anxious to avoid handing public money to those who can get by without it but they lack household income data to target proposed support. Using council tax bands is “the least worst proxy”, Lewis said.
The payment will be in addition to the Warm Home Discount, which offers about 6m means-tested households in England, Wales and Scotland £150 off winter fuel bills.
An end to gas standing charges
This measure will offer a modest saving for most British households – but not all, and perhaps not until next winter.
Healey promised to end “unfair and outdated” standing charges on gas bills for 23m homes “in 2027 or as soon as possible after”. This could help almost two-thirds of households to save an average of £45 a year.
A standing charge is a fixed daily fee paid through all household gas bills, regardless of how much is used. It means homes that severely ration their gas use – or use none at all – still shoulder the same cost as a high-income household.
The charge typically adds about £100 a year to bills and the change means these costs will soon be recovered through a higher unit price for gas. For those with below-average gas use, bills should fall. But there won’t be savings for everyone.
Jonny Marshall, an economist at the Resolution Foundation, said households with high gas use might have higher bills when the unit rate increases. These could include low-income households who have bigger families or poorly insulated homes.
A home using 7,000 kilowatt hours of gas a year would save about £40 under the change, but a household using 14,000 kWh of gas a year could be £25 worse off, according to Richard Neudegg, a director at Uswitch.com. A household using the typical 11,500 kWh shouldn’t see any change, he added.
Lower electricity levies
The government has already begun taking aim at taxes and policy costs loaded on to electricity bills that could over time mean removing hundreds of pounds from bills.
This month, it removed the 5% VAT levy on electricity bills for 29m households, effectively saving them about £45 a year.
This was supposed to help households through the coldest months of the year, until March. But Healey has promised to keep VAT off bills until July, extending the annual savings to £50 a year, according to the Treasury.
The move follows a string of cuts to electricity levies over the past year which have shaved about £150 a year off costs.
“For many years, under Conservative governments, policy costs were simply loaded on to household bills through levies,” Healey said. “Today, I am putting an end to that. We’ll introduce a new cost control framework to drive down all aspects of energy bills.”
Healey confirmed he would consider steps to remove standing charges on electricity too, which add about £200 a year to the average bill. The savings from this measure remain unclear, depending on which costs would move into general taxation and which would be covered through the unit price for electricity.
Healey will continue to alter a subsidy scheme for the UK’s oldest renewable energy projects, around three-quarters of which has been removed from bills and covered by general taxation. The research charity Nesta said this would lower electricity costs by £42 a year.
Healey has scrapped plans for a levy to support hydrogen projects that would otherwise have added £2.60 to £4.50 a year to the average dual-fuel bill.
Low-carbon home upgrades
The government believes that households could save up to £550 a year on energy bills if they invest in solar panels, home batteries and a heat pump. These savings could rise by a further £300 a year with a time-of-use tariff, according to the government.
To help households access these savings, a Warm Home Loans scheme, which launched on Tuesday, will offer government-backed loans of up to £35,000 for low-carbon energy alternatives.
The government said it was committed to rolling out heat pumps through its boiler upgrade scheme, which provides grants of up to £7,500 to help meet the £13,600 cost of installing one.
Grants of up to £9,000 a year are available to households that are not connected to the gas grid and rely on high-cost heating oil.
Energy debt relief
For many, the government’s new measures will come too late to help this winter. But there could be support in the spring from a debt relief scheme.
The government said the delayed scheme will “provide targeted support to customers in genuine financial need”. Total household energy debt has tripled from 2021 to a record £5bn and could reach £7bn by the end of the year.
The one-off, targeted intervention has been designed to help those with debts from the 2022-24 energy crisis and little prospect of repaying them.
Nesta has suggested debt relief could be given to about 2m households for a one-off cost of £2.7bn. This would also cut the £29 a year paid by all households to cover the cost of unpaid bills.
More details on the scheme will follow in early 2027, the government said.
