LONDON — Rachel Reeves needs at least one good news story to sell.
The under-fire U.K. finance minister is gearing up for a tricky budget next week — and slashing Brits’ energy bills could give her something to shout about.
Officials in the Treasury and at No. 10 Downing Street are exploring ways to cut domestic energy costs by shifting some levies currently added to household bills into general taxation, said three government figures granted anonymity to discuss pre-budget planning.
Ministers are targeting a cut of between £150 and £170 on an annual household bill, according to one of the three figures.
That would get Chancellor Reeves and Energy Secretary Ed Miliband halfway toward a totemic election promise of slashing bills by £300 by 2030 — and give the government something positive to pitch on budget day.
Officials are looking at “big numbers,” said another of the figures. “It could be a significant moment.”
A cut to VAT on energy bills is also under consideration, they said, echoing previous reports.
Number crunching by green policy wonks shows how Reeves, via those changes to levies and a potential VAT cut, could get the Treasury to its magic number.
Priority: Bills
Energy bills are the single biggest factor cited by voters as a cost-of-living concern, according to polls. Left-leaning think tank the Institute for Public Policy Research, which is highly influential in government circles, has called on Labour ministers to launch a “war on bills” campaign, modeled on Prime Minister Anthony Albanese’s approach in Australia.
The hope in the Treasury is that, by conjuring up a sum large enough to win some prominent headlines, Reeves might land a good news story on energy bills on a day otherwise set to be dominated by a “smorgasbord” of unpopular tax rises.
Energy prices were “still very high for people,” Reeves acknowledged earlier this month. She pledged to make action on the cost of living “one of the three priorities for the budget,” alongside reducing national debt and protecting the National Health Service.
Last week, nine Labour MPs, including the chair of parliament’s Environmental Audit Committee, Toby Perkins, wrote to Reeves urging her to move all social and environmental levies from bills into taxation.
Advocates regard this as a fairer way to ensure the costs fall on those with the broadest shoulders.
“The public wants to see action to reduce energy bills, which now ranks as the most worrying household expense amongst the population,” the letter, coordinated by charity the MCS Foundation, said.
Options
A dizzying array of levies are charged on bills to pay for renewable energy projects, energy-efficiency schemes and the costs of maintaining a stable electricity system. Collectively, they make up around 18 percent of the average electricity bill.
It isn’t yet clear which might be moved into taxation, but the first government figure above said the so-called Renewables Obligation — a charge that provides an income for older clean energy projects, some built 20 years ago — is the leading candidate to be shifted onto taxation.
The think tank Nesta, which has calculated the value of the reform, says it could potentially cut electricity bills by £86. The New Economics Foundation think tank puts the figure at around £95.
The government is also looking at the Energy Company Obligation, according to reports, which is currently levied on electricity and gas bills. That could instead be paid for using spending already allocated to the £13.2 billion Warm Homes Plan.
The Warm Homes Plan is expected to pay for energy-efficiency measures, solar panels and electric heating for poorer households — but full details have not yet been finalized.
Cornwall Insight, a consultancy which forecasts future trends in the energy market, said Tuesday that cutting VAT on energy bills from 5 percent to zero at the budget could bring down annual bills by a further £80.
Net zero consent
Ministers hope taking direct action on bills will shore up public confidence in the government’s wider energy and climate agenda, which includes a stretching target to almost fully decarbonize electricity by 2030 and hit net zero greenhouse gas emissions by 2050.
The goal in the long run is to reduce U.K. dependence on gas, the volatile price of which has done major damage to household finances in recent years.
But the problem for the government is that actions required to achieve that strategy are — in the short term at least — pushing up bills. The costs of investing in new clean power sources like offshore wind farms, along with the electricity lines and pylons required to clean up the energy system, are all adding to costs.
The independent National Energy System Operator expects charges on energy bills to pay for upgrading the power grid to hit £93.48 next year, a jump of £40. Further increases are anticipated as vast pylon-building projects gather steam.
“This is a really delicate time for prices and their link to the legitimacy of the energy transition,” said Adam Berman, director of policy and advocacy at Energy UK, speaking in September. If ministers don’t look at ways to lower bills now, he argued, “they will be lining themselves up for a very challenging start to next year.”
Opposition parties have seized on this weakness in the government’s energy strategy. The Conservatives are calling for a Cheap Power Plan (rather than a clean one). Nigel Farage’s Reform UK said it would tear up expensive government contracts with offshore wind projects and abandon net zero altogether.
“Bills are the number one public concern,” said Sam Alvis, director of energy at the IPPR. “Regardless of whether it’s to underpin support for the clean power mission, any government needs to show it’s heard that message from the public that they want action on cost. Without that sense of public buy-in now, there’s no hope for any longer term economic or energy reforms.”
A Treasury spokesperson confirmed action on the cost of living was a priority for Reeves but said: “We do not comment on budget speculation.”