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Ministers are drawing up plans to cut energy bills by as much as £200 per household in the Budget, helping to meet Rachel Reeves’ promise to tackle the cost of living crisis and bring down inflation.
The chancellor is planning to scrap VAT from gas and electricity bills and is examining other measures such as removing charges to pay for energy efficiency improvements in lower-income homes, according to people familiar with the matter.
Prime Minister Sir Keir Starmer has been spooked by predictions that household energy bills could climb by about £100 in April 2026 just weeks before crucial local elections, the people said.
But the proposals still fall short of the Labour party’s much-heralded promise to cut energy bills by up to £300 by 2030. The precise savings from the package have not yet been finalised but are in the ballpark of up to £200, according to people close to the negotiations.
Exactly how they will get there is fraught with difficult trade-offs delaying any final decisions. For example, energy efficiency improvements could be funded through the government’s Warm Homes Plan, people familiar with the matter told the Financial Times.
But industry figures warned this idea, first reported by the Guardian, would mean potentially billions of pounds less for measures such as heat pump and solar panel installation.
One industry source warned of another “cut the green crap” moment, referencing then prime minister David Cameron’s gutting of environmental policies in 2013, which analysis says drove up bills by holding back investment in energy efficiency.
Energy bills are a huge issue for the government after Labour repeatedly told voters during its election campaign in 2024 that its policies, such as shifting towards lower-carbon fuel sources, would bring bills down over the long term.
“My Labour government will tackle the root causes of the cost of living crisis and help families save up to £300 off their energy bills,” Starmer had pledged ahead of the election.
The claim has been repeated several times since by ministers, including Ed Miliband, the energy secretary.
But some colleagues believe it has become an albatross for the Labour government given that the matter is not entirely in their control and easy for voters to hold them to account over.
Last month, the bosses of Britain’s leading household energy suppliers warned that electricity prices are set to rise over the next few years due to costs including electricity network upgrades.
Labour’s promise to cut £300 by 2030 stemmed from a report by Ember that took energy bills in October 2023, when they were historically high due to increased gas prices, as its starting point.
However, officials now say the starting point is the average of bills during 2024, which is a slightly lower figure.