Energy bills: UK government urged to launch ‘social tariff’ to help vulnerable households | Energy bills
The UK government is facing calls to spend nearly £4bn to introduce a “social tariff” that would provide cheaper energy to poor households at a time of growing concern over the Iran conflict.
As households brace for a rise in living costs, the Resolution Foundation said ministers should develop a system of discounted domestic energy bills by next winter to protect the most vulnerable households.
Urging the government to support those most in need, the think tank warned that a blanket approach to protecting all households, similar to the energy price guarantee Liz Truss implemented after Russia’s invasion of Ukraine in 2022, would be “wasteful” or risk leaving poor households behind.
In a report prepared as ministers face pressure to intervene on energy bills, the Resolution Foundation said a £3.7bn social tariff subsidizing the gas and electricity bills of the poorest households could provide an average of £310 for the poorest decile household, rising to £520 for a family with high energy needs.
He said such an approach would have the most impact while delivering value for money, amid concern that high levels of government borrowing and debt were limiting Chancellor Rachel Reeves’ capacity to respond.
The social tariff will give households with income before housing costs under £38,000 a 21% discount on electricity and gas prices.
Keir Starmer’s government is coming under increasing pressure from opposition MPs over the potential rise in the cost of living, as the Conservative Party, Reform Britain and Liberal Democrats pressure the chancellor to withdraw a planned increase in fuel duty from September. The 5-pence cut in gasoline and diesel taxes, which was first made after Russia’s invasion of Ukraine, is planned to be phased out this month.
Nigel Farage’s Reform UK has also pledged to scrap VAT on energy bills and any remaining green taxes. VAT on home energy bills is set at 5%. In the autumn budget, Reeves diverted funding to general taxation by cutting green and social taxes from bills to reduce household bills by £150.
But the Resolution Foundation warned that extending the fuel tax cut or removing remaining “political costs” (government-mandated taxes to fund environmental or social programs) would come with a hefty price tag and would help high-income households the most.
The analysis showed that removing the remaining £3.7bn of direct policy costs from domestic bills would give richer households £150 and poorer households £120, given their higher energy use.
Reeves told MPs last week that Treasury officials were dusting off the preparatory work carried out during the Russia-Ukraine energy shock and said the government was exploring targeted support options.
“The fact that this work has taken place means we are further along in this case,” the chancellor told MPs on the House of Commons Treasury committee. “We’re looking at all of those things, but it’s too early to give you different scenarios and different options for different scenarios.”
Proposals to create an energy social tariff to subsidize the bills of low-income households have been made previously. Such plans are common in the telecommunications industry. But the quality of data on household incomes and energy use has delayed progress.
Calling on the government to complete its work on the social tariff rather than “rushing the political response”, the Resolution Foundation said ministers had time to develop a plan before winter because the current Ofgem energy price cap protects households in Great Britain until July.
If a social tariff cannot be introduced in time, removing some policy costs and increasing the value of universal credit benefit payments is the best return but remains a “poor substitute”, he said.
Household gas and electricity bills will remain stable until July, when the energy price cap will be set by the regulator for Great Britain. Forecasters have warned this could then rise by 10 per cent, adding £160 a year to the average bill. Many consumers will also be isolated for longer because they are subject to fixed energy tariffs.
But there are concerns that millions of households were already struggling with energy costs before the first US-Israeli strikes triggered a rise in global oil and gas prices almost three weeks ago.
Age UK’s research, published on Wednesday, shows more than a quarter (28%) of retirees say they were struggling financially before the Iran war began, with energy being the main problem.
