£100 energy payment, USA News: The Chancellor has delivered a Budget promising “breathing space” for households, announcing measures he says are set to cut energy bills “for good”. Here we take a look at the key measures intended to help homes manage the rising cost of energy.
John Healey unveiled a new household bill payment for millions of households as he shared his Budget on Wednesday. Healey said the conflict in the Middle East has driven up energy bills and he recognised this was a “real worry” for households.
“This winter, for 20 million households in council tax bands A to D, I’m announcing a £100 energy payment for households paid directly into people’s bank accounts to deal with rising energy bills. That’s a £2.6bn scheme to take the pressure off in the coldest months and see people through to the spring,” he said.
The policy is set to help around 20 million households – roughly 70 per cent of all residential properties – containing 45 to 50 million individuals who are in council tax bands A to D.
Kevin Mountford, personal finance expert and co-founder of online savings marketplace Raisin UK, said the £100 payment should provide the greatest financial relief to eligible households with the least money to spare, even though the cash amount is the same regardless of income.
He added: “Council tax bands are a blunt measure of financial need. Someone in a band E property may have a low income, high energy needs or very little savings, while someone in band A to D may be comfortably off. Households outside those bands can still benefit from the electricity VAT extension, but missing out on the £100 could leave a significant gap for those already struggling. Support must remain accessible to people whose income and energy needs are not reflected in their property band.”
The Chancellor had been expected to increase the Warm Home Discount, a one-off electricity bills discount for those in receipt of qualifying benefits, by up to £100 but this was not mentioned in the Budget.
Becky Lane, CEO of home energy renovation company Furbnow, said there had been a risk that households just above the eligibility threshold, who are also struggling with rising bills, would get left behind with a Warm Home Discount rise. However, she added: “The Government needs to look beyond short-term discounts and help households make their homes cheaper to run permanently. Better insulation and more efficient heating can save families hundreds of pounds every year, rather than leaving them dependent on another round of bill support next winter.”
Green levies removed from energy bills
The Chancellor announced he is “putting an end” to policy costs being loaded on to household bills through levies. Healey outlined plans in his Budget to axe additional green levies from household energy bills and put the costs into general taxation.
Levies currently make up to 18 per cent of electricity bills and 7 per cent of gas bills. The Chancellor said he will scrap the upcoming gas shippers’ obligation, a green levy to fund hydrogen projects, and instead back those projects directly from government.
Nigel Pocklington, CEO of Good Energy, welcomed the decision to move policy costs off energy bills and into general taxation. But the renewable electricity supplier wanted the Government to go further and move policy costs currently loaded on to electricity bills too.
He said: “Targeted support for households will give families some much-needed breathing space as they head into another difficult and expensive winter.” However, he added that he would like to see the Government “grasp the nettle and commit to finally breaking the link between gas and electricity which is keeping energy prices in the UK the highest in Europe and stagnating growth”.
The average household currently pays about £1,723 a year in energy bills – roughly half for gas and half for power. In total, green levies add about £180 to the average combined energy bill. However, Lane said households will still be paying the levy through taxation.
She said: “Moving green levies into general taxation might make energy bills look cheaper, but it doesn’t make the underlying costs disappear. Households will still be paying for them, just through a different route. The bigger question is whether the Government is doing enough to help families use less energy in the first place.”
Cutting standing charges
Standing charges on gas bills will be scrapped from 2027, Healey has confirmed. The charges, a fixed daily fee applied simply for the facility of having gas which are not based on how much gas is used, cost a typical household £108 per year.
Martin Lewis, founder of Money Saving Expert, said he was very pleased to hear that standing charges will be cut. Speaking outside No 11 on Wednesday morning, Lewis said he estimates that shifting the cost to unit rates would translate to “just under 1p per kwH”.
Lewis said the changes are likely to favour smaller households, which generally use less gas over larger households or people who rely on using more gas such as the elderly or the disabled. He said: “In practice what this means is lower users will pay less, higher users will pay more. But because of the maths, there are some very high users, actually about 60 per cent of people will pay less, 40 per cent will pay more.
“In every income distribution class up to £100,000, the majority of people will pay less. Only above that will some pay more.”
Tony Jordan, energy analyst at Price Intelligence, noted not everyone will benefit from this measure as it only applies to standing charges for gas – which around 70 per cent of UK households are connected to via the grid – not for electricity.
“Some people that use a lot of gas, obviously their gas bills are going to go up quite a bit, potentially, compared to those that [don’t use] a lot where their gas bills will come down,” Jordan said. He suggested the switch means in effect households that are more vulnerable to the cost of living, such as single people living in small flats, will reap the benefits.
Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said: “Removing the gas standing charge will bring real relief to many low-income households who use very little energy and for prepayment customers it could stop debt building up in the summer months.”
VAT cut extension
Healey announced an extension to the VAT cut on household electricity bills until July. “I’m extending that VAT cut through the winter and spring to July, taking £50 off the annual price cap,” he told the Commons.
It comes after the Government previously removed the 5 per cent VAT from electricity bills until 31 March next year to cut around £45 a year. Households are still paying 5 per cent VAT for gas.
Around 29 million domestic electricity customers in England, Scotland and Wales will qualify for the rebate without needing to take any action. However, it comes as the energy price cap, set by regulator Ofgem, was raised by £60 a year this month.
Savings from the extension will depend on a household’s spend on electricity, rather than its income, Mountford said. “The Chancellor’s figure of around £50 a year is an annualised estimate, equivalent to roughly £4 a month while the relief applies. It should not be read as another £50 off everyone’s bill over the extension to July.”
