Millions of struggling households could receive an average £175 cut in their energy bills under a £2 billion plan to protect them from another energy price shock. The Resolution Foundation, which has close links to Labour, says ministers should prepare the emergency system now before feared energy price rises in October and January.
The warning comes amid continuing uncertainty around the conflict in Iran and its impact on wholesale gas prices. The Foundation says wholesale gas has climbed back to around 150 pence per therm, close to levels seen shortly after the first attacks and roughly twice the price recorded a year ago. It warns that the risk of a large jump in prices in Q1 2027 is very real.
Proposed scheme details
The proposed £2 billion scheme would provide an average £175 discount to each eligible household. The report states: “A £2 billion scheme could provide an average of £175 per eligible household.” But ministers could choose to concentrate more of the cash on the poorest families. Under that alternative, households where the highest-income individual earns less than £18,000 would receive around £220, while those with incomes between £18,000 and £24,000 would get around £85. The Foundation says the tiered approach would “favour the poorest”.
The warning comes after the Ofgem price cap jumped 13% between the second and third quarters of this year. Although forecasts for the final quarter of 2026 suggest only a small rise, the Foundation believes households could face a much nastier shock in January if the situation in Iran deteriorates.
Government response and concerns
The Government has already announced a VAT cut on electricity bills from October 1, worth around £45 a year to a typical household. But the Foundation warns this will provide little protection against soaring gas-heating costs. Some 84% of homes are connected to the gas grid, making gas prices particularly important as colder weather arrives.
The think tank is urging ministers not to repeat the approach used during the 2022 energy crisis, when universal support cost the Government £44 billion. It argues that blanket support is an extraordinarily expensive way of helping those struggling with bills because wealthy households benefit too. The report warns: “It does not make sense to rely on further universal support, where the richer half of the population get more than half the benefit.”
Who would qualify?
The proposed scheme would use an income test based on the highest-income individual living in the household. A threshold of £24,000 a year would reach around 40% of households and cover around 75% of households in the poorest four income deciles. The Foundation argues that simply relying on benefits would leave too many struggling households behind. The existing Warm Home Discount system reaches only around a quarter of British households.
The report says passporting support through means-tested benefits “would miss most below-average-income households.” It stresses that financial hardship is not confined to those at the very bottom of the income scale. During the 2022-23 energy shock, more than 15% of households in the second income quintile said they could not afford to keep their homes warm enough.
Implementation challenges
Under the flat-rate version, every eligible household would receive an average £175 discount. But a two-tier system would direct more money towards those on the lowest incomes. Both options would cost £2 billion in total. The Foundation says the money should come from public funds rather than being loaded back onto energy bills.
It acknowledges that a tiered system would be more complicated to administer. The report says ministers should not wait for energy prices to spiral before building the system. It proposes eventually using HMRC data to automatically identify eligible households, meaning people would not have to apply. But establishing the necessary links between HMRC and energy suppliers would take significant work.
For this winter, the Foundation says people who do not receive means-tested benefits would probably have to declare their income themselves, with HMRC checking the information afterwards. The report admits this would have drawbacks, including the risk of fraud, errors and lower take-up. But it concludes that this is “still likely the most deliverable option in the short term” for extending support beyond benefit recipients without the waste of universal schemes.
January deadline
The Foundation's message to ministers is that preparations need to start now. It says energy prices have already spiked twice in the past four years and there is a genuine danger of another surge when the Ofgem price cap is reset in January. Its conclusion is stark: “The Government can’t afford to risk not having an effective scheme ready to go at the start of next year.”
The proposed system would cut the unit price of gas and electricity for eligible households, rather than simply handing out blanket payments. The Foundation argues this would provide greater protection to those who actually use more energy, while avoiding the enormous cost of universal support. It says the system should be “ready to protect vulnerable households this winter” and capable of being switched on when required.
The existing Warm Home Discount already provides an annual £150 reduction on electricity bills for eligible households during the winter. But the Foundation believes ministers need a much broader contingency plan capable of reaching low-income families who fall outside the benefits system.
