Energy bill discounts expected to rise for benefit claimants

Lower-income households are set to receive additional help with their energy bills in Andy Burnham‘s first Budget.

Chancellor John Healey confirmed ahead of the financial statement on Wednesday that standing charges on gas bills will be scrapped from 2027 for around 23 million homes.

The charges are a fixed daily fee added to bills, regardless of how much gas a customer uses, and cost around £108 per year for a typical household.

Industry sources had also hinted that help could come through an increase to the Warm Home Discount, which currently provides eligible households with £150 a year off their electricity bills.

The discount is expected to rise by up to £100, but there has been speculation it could rise by more. Those eligible include households receiving qualifying benefits such as universal credit, pension credit, housing benefit and income-related employment and support allowance.

Shorts

Around six million households across Britain are expected to benefit from the scheme this winter – although the number of households covered and any changes to eligibility would depend on the final package.

Healey said the Budget would help households with “everyday costs”.

“This Budget is designed to give households breathing space from some of the everyday costs, provide targeted support for businesses and self-employed people, and to start the long-term action needed to get energy costs down for good,” he said.

Soaring energy costs

It comes amid soaring costs for household energy due to global shocks, including the Iran war in the Middle East. On October 1, the regulator Ofgem increased the price cap for energy bills by 4 per cent to £1,723 a year.

The cap is expected to rise again in January with energy consultancy Cornwall Insight predicting a 16 per cent rise to £1,999 a year, with prices expected to stay high throughout 2027.

This is putting pressure on the Government to act after Andy Burnham promised “breathing room” on the cost of living when he became Prime Minister.

Alongside immediate help with bills, ministers are expected to consider longer-term changes aimed at bringing down energy costs.

Energy Secretary, Miatta Fahnbulleh, has said ministers are examining options to reform standing charges, describing them as a system the public “absolutely hates”.

Speaking at a lunch with journalists last week, she said the charges meant people were billed before they had used any energy – limiting their ability to control costs by reducing consumption.

She said the Government was looking at the options, adding that it needed to act urgently to get rid of the current system “so watch this space.”

Fahnbulleh said making bills more affordable was her “number one priority”, arguing that reform needed to go beyond generating cheaper energy and address how the wider system works.

She pointed to the need to reform retail and wholesale markets and energy networks, so they worked more in consumers’ interests.

Other options to lower bills

Other options being discussed include changes to energy tariffs to make essential energy use more affordable for low-income households.

A social tariff, for example, could offer eligible households discounted energy, although its design would need to determine who qualifies and how the cost is funded.

Another proposal is to move some policy costs currently included in energy bills into general taxation. This could reduce charges on bills but would shift the cost to taxpayers rather than eliminate it.

Burnham has also called for electricity market reforms to weaken the link between domestic electricity prices and the international gas market, alongside expanding renewable and nuclear power.

But the Conservatives have argued that targeted support will not go far enough, calling instead for measures to reduce energy costs for everyone.

The party’s proposed cheap energy plan would remove levies, charges and VAT from energy bills, which it says would bring down costs regardless of household income.

Andrew Bowie, the shadow Energy Secretary, told The i Paper: “The plans we have would reduce bills for everyone in this country by removing the levies, charges and VAT on energy bills. Labour are simply handing out cash to those on receipt of benefits. The Conservatives would slash the cost of energy for everyone.”

Warm Home Loans

Separately, the Government is helping households switch to cleaner, more energy-efficient heating through its Boiler Upgrade Scheme, which offers grants towards the cost of installing heat pumps.

The scheme could face cuts in tomorrow’s Budget, with reports suggesting ministers are considering reducing its funding to help meet defence spending commitments. However, no cuts have been confirmed.

The Government has also launched its Warm Homes Loan Scheme, offering households access to interest-free or lower-interest loans to install technologies such as solar panels, home batteries and heat pumps.

The loans are intended to make energy-efficiency improvements more affordable by spreading the upfront cost over several years, with repayment terms of up to 30 years available on some products.

The Government says borrowing costs could be up to five percentage points lower than with standard lending, although rates and terms will vary between providers.

Homeowners can also combine eligible loans with grants from the Boiler Upgrade Scheme to help pay for a heat pump. The Boiler Upgrade Scheme applies in England and Wales, while Scotland has separate support arrangements.