Chancellor Rachel Reeves is under growing pressure to deliver a significant cut to energy bills for millions of households in next week's crucial Budget. The move is seen as a key test of her pledge to tackle the ongoing cost of living crisis.
Mounting Pressure for Action
Speculation is intensifying that the Chancellor may scrap VAT on energy bills, a measure that would save the typical customer around £84 a year. However, consumer champion Martin Lewis and leading think tanks are urging the government to go much further. They are calling for policy costs to be shifted away from electricity bills and onto general taxation instead.
This call for action comes at a critical time. Regulator Ofgem has confirmed its price cap for 34 million energy accounts will rise again in January to an average of £1,758 a year, dashing hopes for a winter drop. To make matters worse, the cap is forecast to climb by another £57 to £1,815 next April.
Science Secretary Liz Kendall fuelled speculation, stating: "The Chancellor has been very clear - she wants to see more action to bring the cost of living down... I'm sure there will be more action on the cost of living in the Budget."
Why Are Bills Still So High?
The reality for British households is stark. Average energy bills are now nearly £700 higher than they were just five years ago. A breakdown of the new £1,758 average annual bill reveals the key components:
- Wholesale energy costs: £690 (down from £720)
- Network costs: £396
- Supplier costs: £279
- Supplier profit: £44
The single biggest driver of January's price rise is a £21 annual increase in government policy costs, which now stand at £236. These costs fund vital schemes like renewable energy obligations and the Warm Home Discount, but also now include funding for the new Sizewell C nuclear power plant.
The Case for Fundamental Reform
Martin Lewis, founder of MoneySavingExpert.com, argues the current system is flawed. "We have to question why we lump all these policy costs on electricity bills," he said. "Putting them on electricity bills is regressive compared to putting them into general taxation - and is policy perversion for a government trying to get people to ditch gas."
His view is supported by experts. Jonny Marshall of the Resolution Foundation stated that shifting some policy costs could cut typical bills by around £160 a year and bring inflation down. Dame Clare Moriarty of Citizens Advice echoed this, calling for a change that could bring bills down by hundreds of pounds for the most stretched households.
However, Dr Craig Lowrey of Cornwall Insight offered a note of caution, explaining that such changes represent a "zero-sum outcome" as the costs would still need to be recovered, whether through bills or taxes.
With the UK experiencing its coldest night of the autumn so far and nearly half of all gas used in the first three months of the year, the decisions made in next week's Budget will have an immediate and profound impact on millions of families.
