Energy bills: what can the government actually do?

Energy prices are expected to rise sharply in January, with a typical UK annual bill forecast to jump by 16% – amounting to £276 – impacting millions of households at the coldest time of the year.

Successive UK governments have launched a series of schemes to support bill payers in recent years, and now Andy Burnham is under pressure to go further still. The prime minister and Chancellor John Healey must come up with a fresh package of measures to curb rising energy costs, an anonymous Labour MP told The Guardian. “Without it, the vibes will end.”

Here are some of the options at the PM’s disposal – although all come with a cost.

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GB Grid

Burnham is proposing a publicly owned body that would bring electricity distribution under greater public control and ownership. The government-backed GB Grid would work with the private sector and power networks to increase competition, drive down costs and speed up delivery of much-needed new infrastructure.

However, its £4 billion funding represents “a fraction of the £70 billion investment expected over the next five years” by the networks themselves, so its “level of ‘control’ is likely to be limited, too”, said The Guardian.

More direct financial support

Another option is for the government to target direct financial support at households struggling the most by expanding or temporarily increasing schemes such as the Warm Home Discount. Around 5.5 million low-income households benefited from the scheme last year.

But “virtually everybody agrees it is inadequate for the bills on the way”, said Nils Pratley in The Guardian. Existing help “misses swathes of households who would fall within a better definition of ‘vulnerable’”, including those with “high energy needs for health reasons”.

Industry body Energy UK told the BBC that on top of those receiving the Warm Home Discount, another 2.5 million customers need help with high bills linked to a medical condition or energy-inefficient home.

Cut taxes

The government has already removed VAT from domestic electricity bills between October and March. This will save households “an average of £45 per year” and offer them some “breathing space”, said the Department for Energy Security and Net Zero. Further tax cuts could further reduce energy bills, but the Treasury would have to find the money to pay for these from elsewhere.

Use less energy

The government could increase schemes offering improved insulation, heat efficiency and the replacement of old heating systems. Unlike a blanket subsidy, the benefit can continue after wholesale prices fall, reducing household energy bills over the longer term. The government’s £15 billion Warm Homes Plan has already set out to upgrade up to five million homes by 2030.

These are potentially more durable approaches than repeated emergency payments, although, once again, funding would need to be found from elsewhere.

An energy guarantee

An affordable energy guarantee would provide a portion of cheaper energy to all households. It would be designed to cover a typical household’s basic energy use, with higher levels of usage being charged at the market rate.

The UK government’s Energy Price Guarantee capped typical household energy bills at £2,500 a year starting in October 2022, but this ended in 2023.

The New Economics Foundation think tank is among a group of campaigners urging the government to bring in a national energy guarantee.