Burnham weighs £3.2bn energy overhaul to cut bills and boost heat pumps
The package, which includes wiping out consumer debt backlogs, faces funding challenges ahead of the autumn budget.
New Labour leader Andy Burnham is reviewing a comprehensive set of proposals from the thinktank Nesta designed to reduce average household energy bills by approximately £130 annually. The plan, which Burnham is expected to consider as part of his initial cost-of-living package, seeks to fundamentally restructure how households pay for gas and electricity while incentivising the transition to clean heating technologies.
Central to the proposal is an overhaul of gas standing charges, which currently add a fixed daily cost to bills regardless of usage. Nesta recommends shifting these costs from low-income households to higher users by integrating them into the overall unit price. This structural change aims to ensure that households with higher gas consumption, typically those with greater income, shoulder a larger proportion of grid maintenance costs.
The thinktank also advises removing renewable energy policy levies from electricity bills and reducing the VAT rate on electricity. These measures are projected to lower electricity costs by £42 and £41 per year respectively. By making electricity cheaper relative to gas, the reforms intend to render heat pumps more economically viable than traditional gas boilers, thereby accelerating the adoption of low-carbon heating solutions.
A significant component of the package involves a one-off bailout to clear the backlog of consumer electricity debts, estimated at £2.7bn. This intervention would provide relief to approximately 2 million households and eliminate the £29 annual surcharge currently paid by all households to cover unpaid bills. Nesta calculates that energy bills would fall for 84% of the poorest households, delivering an average saving of £22 per year.
The total annual cost of these reforms to the taxpayer is estimated at £3.2bn, with the debt relief representing a separate one-off expenditure. Burnham’s team has not yet confirmed how these costs will be funded, though sources suggest the measures could be incorporated into the new chancellor’s first budget this autumn, potentially requiring tax rises. Burnham’s office had not responded to requests for comment at the time of reporting.