The Resolution Foundation has proposed a temporary discount scheme that could save lower-earning households £175 on their gas and electricity bills this winter. The think tank presented the proposals to Prime Minister Andy Burnham, urging the Government to have an effective support mechanism ready to switch on.
Call for Targeted Support
The Foundation warned that the Government currently has no way to support struggling households outside the benefits system. It urged ministers to prepare a scheme to help those vulnerable to bill hikes, particularly from January to March next year, to soften potential gas price shocks this winter linked to the war in Iran.
The think tank recommends applying a temporary discount to gas and electricity unit prices for households in need. It argues that relying on universal support is not sensible, as the richer half of the population would receive more than half the benefit. However, it acknowledges that targeted support is challenging, noting that the Warm Home Discount only reaches about a quarter of British households.
Proposed Eligibility and Costs
To address this, the Foundation suggests expanding support beyond those on means-tested benefits to include households passing an income test based on the highest-income individual. Its analysis shows that a threshold of £24,000 per year would extend support to around 40% of all households and reach over four-fifths (83%) of the poorest fifth of the population.
Such a scheme would cost £2 billion and provide an average discount of £175 per eligible household. A tiered system could offer around £220 to those earning below £18,000 and £85 to those earning between £18,000 and £24,000, though this would add complexity.
Potential Gaps and Future Recommendations
The Foundation admits the scheme would not be perfect. For example, single-earner households above the threshold might be missed, particularly working-age couples with children. It suggests mitigations such as a more generous income threshold for households with children.
The think tank also calls for a more robust system for future crises, including automatic enrolment via HMRC data rather than self-declaration. This comes as their analysis shows poorer households have not recovered from gas cuts made after the 2022 invasion of Ukraine. Lower-income areas reduced gas use by 15% more than higher-income areas, but two years later, only one-sixth of that reduction had been reversed, indicating these households are still heating their homes less than comfortable.
Jonathan Marshall, principal economist at the Resolution Foundation, said: "The last energy crisis pushed families in the poorest places to cut their heating by more than those in the richest, with most still not warming their homes as much as they used to – and a fresh price spike this winter risks driving them lower still."
He added: "The Government can get ahead of this, if it acts now. A targeted energy discount could save eligible households £175 a year and reach over four-fifths of the poorest families, while expanding support beyond just those on means-tested benefits."
Marshall also noted: "Successive governments have failed to build a robust system for dealing with household energy prices. But with ongoing uncertainty in the Middle East meaning there is still considerably volatility in energy markets, the Government must act now to have a targeted scheme ready to switch on by January 2027, so that support reaches struggling families quickly when they need it most."
Government Response
In one of his first acts as PM, Andy Burnham announced that VAT on electricity bills will be removed, a move expected to knock £45 off the average bill. A DESNZ spokeswoman said: "The Energy Secretary’s focus is bringing bills down for good. We will tackle the cost of living to make life's essentials affordable again and bring back hope."
