A £100 basket in January 2021 now costs £132. Lower inflation would slow that rise, not reverse it.

Decide who pays the remaining policy costs on electricity bills — and protect households who cannot switch from gas

Decision

Commission DESNZ and Ofgem to publish distributional modelling of three specified designs on the post-April 2026 tariff baseline, by heating type and income decile, with compensation options; consult; and take the decision together with the Treasury’s decision on the Renewables Obligation funding after 2028–29.

Accountable institution

Department for Energy Security and Net Zero and HM Treasury; Ofgem for the price-cap methodology

Geography

Great Britain

Powers

Levy schemes are set in legislation (the Renewables Obligation orders, Feed-in Tariffs and Warm Home Discount regulations); moving costs between fuels or to taxation needs secondary legislation or a fiscal decision, and Ofgem changes to the cap methodology and supplier licences. Exchequer funding needs a Budget decision.

Delivery partners

Ofgem; Energy suppliers (billing and Warm Home Discount payments); DWP (data matching for targeted support); Citizens Advice and fuel-poverty charities; HM Treasury (fiscal decision)

Target population

Households in Great Britain, separated by heating type (electric, gas, off-gas other fuels) and income — with low-income gas households who cannot switch named as the group to protect.

Eligibility

Bill changes apply to every domestic customer of the fuel concerned; targeted support (design C and the compensation in design A) to low-income households identified through benefit and property data.

Scale

National by nature, because levies are recovered from every bill. No new delivery scale is chosen: the decision is about who pays a fixed set of costs.

Baseline

Since April 2026 the Exchequer has funded 75% of the domestic Renewables Obligation for 2026–27 to 2028–29 (£2.58bn in 2026–27) and the Energy Company Obligation is no longer funded through bills after March 2026 — about £150 off the average household’s bills, or £134 off the typical dual-fuel price cap (Budget 2025). Policy costs are now about a tenth of a typical electricity bill (£90 in April–June 2026, against £298 wholesale and £252 networks; UKERC). In Oct–Dec 2026 the cap’s unit rates are 26.32p per kWh for electricity and 7.97p for gas, a ratio of 3.3 to 1, and the typical dual-fuel cap is £1,723 a year (Ofgem). 9.4% of households in England were fuel poor in 2025. CPI inflation was 3.1% in August 2026, against the 2% target (ONS).

Source: HM Treasury, Budget 2025 (HC 1492) (Para 2.4, footnote 77; Table 4.1 line 1); UK Energy Research Centre, The Cost of Electricity in the UK: Drivers, Challenges and Opportunities for Reform (UKERC Briefing Paper) (“Bills post-Budget” (p.15)); Ofgem, Energy price cap (default tariff) levels — Annex 9, levelised cap levels (Annex 9, unit rates and sheet 1c); Department for Energy Security and Net Zero, Annual Fuel Poverty Statistics in England, 2026 (2025 data) (Report p.1); Office for National Statistics, Consumer price inflation, UK: August 2026 (Series D7G7)

Change beyond existing law or funding

Budget 2025 already moved 75% of the domestic Renewables Obligation to taxation, but only to 2028–29, and stopped funding the Energy Company Obligation through bills after March 2026. The added decision is what happens to the costs still on electricity bills (the remaining quarter of the Renewables Obligation, Feed-in Tariffs, the Warm Home Discount and new nuclear funding) and after 2028–29, chosen from re-modelled designs with protection for those who cannot switch: (A) move remaining levies to gas bills with levy-funded support; (B) move them to general taxation; (C) leave them and expand targeted support (a larger Warm Home Discount plus a unit-rate discount).

Do: Move the remaining policy costs off electricity unit prices (to gas bills or to taxation), or offset them for low-income households with targeted discounts Changing: a lower electricity-to-gas price ratio (designs A and B), or lower bills for eligible low-income households (design C)

• Running cost of switching from a gas boiler to a heat pump

  Modelled, not observedEffect record E-A17-HEATPUMP

  Nesta modelled about £400 a year saved by a typical switcher, on April–June 2025 prices; not re-run after the April 2026 changes, so no size is shown. UKERC says a ratio of about 2 to 1 or below is broadly needed for heat pumps to compete with gas.

• Bills of households that stay on gas

  Modelled, not observedEffect record E-A17-GAS-HOUSEHOLDS

  A harm under design A: about £76 a year more for gas households not eligible for support (about £20 for the 19 million or so such households if other levies also move to taxation, at about £1.1bn a year), while 3.6 million poorer gas households eligible for support saved about £83 (Nesta, April 2025 price cap). Design B shifts the cost to taxpayers instead; design C leaves gas bills unchanged but adds levy-funded support.

• Fuel poverty among low-income households with electric heating

  Hypothesis to test

  Electrically heated households were twice as likely to be fuel poor (21%) as gas users (10%) in Nesta’s figures; a lower unit price should help them most, but no model on today’s tariffs exists.

• General inflation

  Hypothesis to test

  Not a benefit of this brief. Moving costs to taxation lowers measured CPI once, for as long as it lasts (Budget 2025 forecast its measures would cut inflation by over 0.2 percentage points in 2026–27); moving them to gas largely reshuffles the energy index. Neither changes underlying inflation, which the Bank of England targets.

Outcomes are kept separate and never added into one impact figure.

• How to make electricity cheaper (position paper) and Options for levy reform (technical report)

  Author or institution:

  Andrew Sissons, Marcus Shepheard, Martina Kavan, Elysia Lucas, Daniel Lewis (Nesta, a charity advocating heat electrification)

  Published:

  5 June 2025

  Evaluation period:

  April–June 2025 Ofgem price cap

  Design:

  Distributional bill model using Ofgem price-cap methodology and consumer archetypes

  Sample or population:

  Great Britain households by heating type and eligibility for bill support

  Effect and uncertainty:

  Moving Renewables Obligation and Feed-in Tariff costs to gas: 4.5 million off-gas households save about £240 a year; 3.6 million poorer gas households save about £83 with support; gas households not eligible for support pay about £76 more (about £20 for some 19 million households in the compound proposal, which also moves other levies to taxation at about £1.1bn a year). Expanded Warm Home Discount (+840,000 households, core budget £514m to £640m) plus a 0.5p/kWh discount (£310m), levy-funded.

  Limits:

  Pre-dates Budget 2025: 75% of the Renewables Obligation it proposes to move is now on taxation to 2028–29, so the sizes are overtaken. Households only; own price and consumption assumptions.

  Where: “The solution: rebalance levies and support households”; “The social tariff”; “Heat pumps become an even more affordable option”; technical report pp.4, 11, 13. Affiliation is provenance, not proof of quality.

• The Cost of Electricity in the UK: Drivers, Challenges and Opportunities for Reform (UKERC Briefing Paper)

  Author or institution:

  Kaylen Camacho McCluskey, Richard Carmichael, Aidan Rhodes, Rob Gross, Will Blyth (UK Energy Research Centre)

  Published:

  28 July 2026

  Evaluation period:

  Ofgem cap data 2015–16 to April–June 2026

  Design:

  Analysis of price-cap bill components and review of reform options

  Sample or population:

  Typical dual-fuel direct-debit household, Great Britain

  Effect and uncertainty:

  Policy costs fell by £88 (51%) from the 2025–26 average to April–June 2026, to about a tenth of the electricity bill (£90); wholesale £298 (32%), networks £252. Moving the remaining policy costs to taxation could cut electricity bills by up to 10%.

  Limits:

  A briefing; bill components for a typical household, not by income or heating type; trajectories exposed to gas-price shocks.

  Where: Section 3, “Bills post-Budget” (PDF p.15, printed p.11); Executive summary (PDF p.7); Box 3 (PDF p.19). Affiliation is provenance, not proof of quality.

• Energy bills support: an update (HC 232, 2023-24)

  Author or institution:

  National Audit Office

  Published:

  14 November 2024

  Evaluation period:

  2022 to March 2024

  Design:

  Value-for-money audit of the energy bills support schemes

  Sample or population:

  All domestic and non-domestic support schemes in Great Britain and Northern Ireland

  Effect and uncertainty:

  Total estimated cost £44bn; the universal Energy Price Guarantee about £24.0bn. Protected most consumers from the extremes, but some support went to consumers who did not need it.

  Limits:

  Costs still being reconciled; the wider economic evaluation was not yet done.

  Where: Conclusions; para 2.2 and Figure 3. Affiliation is provenance, not proof of quality.

Closest feasible alternative

Keep current policy (75% of the Renewables Obligation on taxation to 2028–29, Warm Home Discount of £150 for about six million households) and put the money into retrofit, which lowers the energy homes need rather than its price (see the national decision brief on /energy).

Strongest counter-evidence

After Budget 2025 policy costs are only about a tenth of a typical electricity bill, while wholesale and network costs are about a third each, so further rebalancing has much less to move than Nesta modelled; and Nesta’s figures are now out of date.

Source: UK Energy Research Centre, The Cost of Electricity in the UK: Drivers, Challenges and Opportunities for Reform (UKERC Briefing Paper) (“Bills post-Budget” (p.15)); Nesta, How to make electricity cheaper (position paper) and Options for levy reform (technical report) (Technical report (April 2025 cap basis))

Distributional effects

Design A: gains for electric-heated and heat-pump households, small rises for gas households, many of them tenants who cannot switch. Design B: costs fall on taxpayers by income, so it is more progressive than bills but competes with other spending. Design C: gains concentrated on eligible low-income households, with a levy on all other bill-payers. Lower-income households face higher inflation on essentials in energy shocks: at the October 2022 peak, 13.6% for the second-lowest income tenth against 11.6% for the second-highest (ONS Household Costs Indices).

Main downside

Raising gas prices hits households that cannot change their heating; funding from taxation costs billions a year (the current 75% share alone is about £2.1bn to £2.6bn a year) and stops after 2028–29 unless renewed.

• data — Linked data on heating type, consumption and income (and off-gas homes) to model winners and losers, and to target support without relying only on benefit receipt. (Scarce resource shared with other priorities; owner: DESNZ with DWP and Ofgem)
• law — Secondary legislation to change how levy schemes are recovered, or a Budget decision to fund them from taxation after 2028–29. (Genuine veto: nothing proceeds without it; owner: DESNZ; HM Treasury; Parliament)
• procurement — Ofgem changes to the price-cap methodology and supplier licence conditions; supplier billing changes. (Requirement; owner: Ofgem; energy suppliers)
• staff — Heat-pump installers, so households can respond to cheaper electricity — the same workforce the retrofit programme needs. (Scarce resource shared with other priorities; owner: DESNZ (skills); MCS-certified installers)
• public consent — Gas households accepting higher bills (design A), or taxpayers funding levies (design B). (Requirement; owner: DESNZ and HM Treasury)

How the cost is built up: Design A: remaining electricity levies moved to gas + levy-funded targeted support (a transfer among bill-payers). Design B: remaining electricity levies × years funded from taxation (an Exchequer cost). Design C: expanded Warm Home Discount + unit-rate discount, recovered from all bills. Plus modelling and administration. The designs are alternatives; their costs are never added together.

• Further levy rebalancing from electricity to gas or taxation

  Great Britain household bills

  Not yet costed (ledger C-A17-TRANSFER)

  recurring; price year not stated; Each year after the change; Not yet established

  A transfer between bill-payers or to taxpayers, not a saving. For scale only: the Exchequer cost of funding 75% of the domestic Renewables Obligation is £2,580m in 2026–27 (Budget 2025); the remaining quarter is not separately costed.

  Source: UK Energy Research Centre, The Cost of Electricity in the UK: Drivers, Challenges and Opportunities for Reform (UKERC Briefing Paper) (p.15)

• Protection for households who cannot switch from gas

  Low-income gas-heated households

  Not yet costed (ledger C-A17-PROTECTION)

  recurring; price year not stated; Each year after the change; Not yet established

  Nesta’s illustrative design (about £126m more for the Warm Home Discount core budget and £310m for a unit-rate discount, 2025 assumptions) is not re-modelled, so not shown as a cost.

  Source: Nesta, How to make electricity cheaper (position paper) and Options for levy reform (technical report) (“The social tariff”)

• Distributional re-modelling and consultation on the post-April 2026 baseline

  Three designs, by heating type and income decile, with compensation options

  Not yet established per modelling exercise

  one-off revenue; price year not stated; Before the 2028–29 decision; Not yet established

Programme envelope (a possible route, not an award)

None identified

Allocation committed to this change

None

Remaining gap

Not costed on the current baseline; from 2029–30 the 75% Renewables Obligation share returns to bills unless a new decision is made.

Proposed financing

Designs A and C are financed by bill-payers through levies (a transfer, not new money); design B needs a Treasury decision on tax, spending or borrowing. The current Exchequer funding of 75% of the Renewables Obligation stops after 2028–29. Nothing is allocated to any design.

Responsible payer

bill-payers, central government

Budget displaced

Design B: other spending or tax cuts, at a scale of billions a year. Designs A and C: household budgets of the bill-payers who pay more.

DESNZ and Ofgem publish distributional modelling of the three designs on post-April 2026 tariffs, by heating type and income decile. (Owner: DESNZ with Ofgem. Proposed by UK Facts, not an official deadline.)

Time to first useful result: Modelling within months; bill effects from the first price-cap period after any change; heat-pump uptake over several years.

What could delay it: Data linking heating type and income are available to DESNZ The Treasury decides the post-2028–29 Renewables Obligation arrangement in time for Ofgem to change the cap Wholesale gas prices do not swing so far that the baseline must be re-run Installer capacity grows enough for households to respond

Baseline

Electricity-to-gas unit price ratio in the cap; annual bills at matched consumption by heating type and income decile; fuel poverty by main heating fuel; heat-pump installations.

Comparison

The current-policy path (including the return of the 75% share to bills in 2029–30, unless changed), modelled on the same tariffs; observed outcomes before and after each cap period that implements the change.

Leading indicator

The unit price ratio and heat-pump installations each quarter; Warm Home Discount receipt among eligible low-income gas households.

Follow-up

Annual fuel poverty statistics by heating fuel; bills by income decile; heat-pump uptake over three to five years.

Continue if

Electric heating becomes cheaper to run relative to gas and heat-pump uptake rises, without fuel poverty rising among low-income gas households.

Adapt if

Low-income gas households’ bills or fuel poverty rise: widen or deepen the targeted support before the next stage.

Stop if

The design raises fuel poverty overall, or cannot be targeted to protect households who cannot switch.

Thresholds

Not yet set: Numerical levels need the re-modelled baseline and a published impact assessment; none exists on today’s tariffs.