Energy bills are forecast to jump by £276 a year from January, hitting the poorest hardest, and the government appears unprepared for the shock. From the quarterly price cap level of £1,723 that applies from Thursday for an average dual-fuel household, forecasts for the first three months of 2027 range from £1,999 (Cornwall Insight) to £2,076 (EDF), implying an 18% quarter-on-quarter rise in the unit rate at the peak consumption months.
Immediate cause and government response
Soaring gas prices are the immediate cause, but the government cannot claim surprise; the threat of a prolonged price spike has been present since Donald Trump's Middle East misadventure became more than a one-week affair. Ministers have fiddled at the margin: Rachel Reeves, when chancellor, took a chunk of green levies into general taxation from April, and Andy Burnham cut VAT on electricity from 5% to zero for six months starting Thursday as one of his "breathing space" measures. But properly targeted help for the most vulnerable is missing.
Inadequacy of the warm homes discount
The warm homes discount scheme, worth £150 and used by 5.5 million low-income households last year, is paid for by all bill payers. Virtually everybody agrees it is inadequate for the bills on the way and misses households that would fall within a better definition of "vulnerable", such as those with high energy needs for health reasons. The consensus answer, promoted by thinktanks, charities, regulators and energy companies for years, is a well-designed flexible social tariff or discount scheme.
In February 2023, the chief executive of Ofgem said: "We think that, with bills continuing to be so high, there is a case for examining with urgency the feasibility of a social tariff for customers in the most vulnerable situations." Three winters later, little urgency is apparent. A social tariff would be a data exercise involving household income, health records and energy consumption, with cliff-edge judgments required; perfection would be impossible.
Possible measures and outlook
This winter will probably see John Healey upping the level of the warm homes discount in next month's budget because it's the only lever available. He could conceivably remove VAT from gas as well as electricity, though that would run against the national electrification agenda, or take more "hidden taxes" of energy transition into taxation, as urged by 120 organisations a fortnight ago.
Energy secretary Miatta Fahnbulleh recognises the mess, with unpaid consumer debts in the energy system projected to reach £7bn by the end of this year. She told this site's Politics Weekly podcast: "There is a question that needs to be answered … we have to think about the costs and how we recover it in the most fair way." Her realism contrasts with her predecessor's line about "£300 off bills by 2030"; EDF's projection of "stubbornly high" bills for the end of the decade is more realistic, with higher non-commodity costs coming even when gas prices fall.
The government does not appear close to settling on a joined-up model for bill support for the most vulnerable that could serve this winter and future winters. The usual last-minute scramble for ideas and higher levels of fuel poverty than necessary seem likely, and the multi-year dithering is inexcusable.
