What will the Chancellor do on energy bills at the budget and beyond?

Just days away from the budget, energy bills have once again featured prominently in pre-budget rumours. Average energy bills are forecast to increase by £276 per year in January, the biggest increase since the energy crisis triggered by Russia’s invasion of Ukraine.

Unsurprisingly then, reporting suggests John Healey is set to make a major intervention to bring down prices, most likely an increase to the Warm Homes Discount, which has only increased once since 2014.

An increase to the WHD would provide immediate, targeted relief to the most vulnerable households. But it is understood that Energy Secretary Miatta Fahnbulleh is pushing more radical reforms, including moving levies into general taxation and a "rising block tariff" which would see households charged less for an "essential" amount of energy, with tariffs rising once consumption passed that point.

Opposition parties, industry, think tanks and NGOs have all proposed a range of measures to cut energy bills going into winter, driving cost-of-living benefits, electrification and decarbonisation. But there are no easy answers for the incoming government, as fiscal constraints continue to bite.

Ahead of the Budget, Seahorse have drawn up a list of the most prominent proposals to cut energy bills:

Increase the Warm Home Discount

The Warm Home Discount (WHD) has increased once since 2014, rising from £140 to £150 in response to the energy spike following the full-scale invasion of Ukraine. The Starmer Government expanded eligibility to the Discount in 2025 – the scheme now reaches 5.5 million households, costing £827 million annually. But calls have grown for a further increase. Citizens Advice has called for a tiered Discount paying up to £710 for those with the greatest need.

Healey is understood to be considering an increase to the Discount of £100, funded through general taxation (rather than bill-payers, as the existing discount is). Raising the Discount once more would provide targeted relief to the most vulnerable households, but risks leaving ineligible households fully exposed to price rises.

Reform standing charges

Speaking in the House of Commons on Wednesday, Andy Burnham said he had asked the Chancellor and Energy Secretary to look into removing standing charges from gas bills. Proposals made by Nesta earlier this year suggested moving the standing charge for gas onto the unit rate would save the average household £27, with the poorest households seeing the greatest benefits. The higher unit cost would also reduce the price ratio with electricity, incentivising electrification.  

Standing charges on electricity make up around 25% of an average consumer electricity bill. Charged at a flat rate across all households, standing charges are regressive in character. They also mean each individual unit of energy is cheaper, disincentivising reductions in consumption by consumers.

However, consumer groups remain concerned that introducing a low- or zero-standing charge tariff could carry risk for uninformed consumers now paying higher unit costs. In 2025, Ofgem consulted on a new requirement for energy suppliers to offer at least one lower standing charge tariff, however the proposals faced significant opposition over concerns that tariffs were more likely to be expensive for consumers with higher consumption, and the proposals were scaled back to a one-year pilot which began in June this year.

Introduce a rising block tariff

DESNZ officials are reportedly working on proposals for a "rising block tariff". Under these proposals, which would be implemented after the budget, households would be allocated an "essential" amount of energy at a discounted rate, with increased tariffs for consumption beyond that amount. Notably, the New Economics Foundation proposed a similar policy in 2023, when Miatta Fahnbulleh led the think tank. The Joseph Rowntree Foundation has developed similar proposals – one of the authors has now joined DESNZ as Principal Policy Advisor for Affordability.

The policy is backed by soft-left Labour grouping Tribune, which suggests that the policy could be partially self-funded by placing a premium on higher energy use. Mainstream, a Labour left group closely associated with Andy Burnham, has gone a step further by suggesting every household be allocated a block of energy completely free. The Liberal Democrats announced another similar proposal – the Essential Energy Guarantee – in June.

The policy is not without its opponents; industry figures have noted that premium tariffs at greater levels of consumption could disincentivise uptake of electric technologies like EVs and heat pumps. An RBT could also be awkward to combine with time-of-use tariffs that encourage consumer-led flexibility, creating confusion for consumers.

Given the complexity of implementing these proposals, it is unlikely they would be in place in time for winter, when high prices are felt most. But this approach effectively bridges the gap between targeted policies, that risk leaving certain households falling through the cracks, and universal but more regressive policies like VAT cuts.

Reform electricity levies

The Energy Secretary is also pushing the Treasury to reduce bills by up to £120 by removing further levies. The Starmer Government made a strong first step on levy reform by removing £150 from energy bills by scrapping the Energy Company Obligation and moving 75% of costs from the Renewables Obligation into general taxation. Further reform of levies on electricity bills has broad support across the sector but the details of implementation remain sticky.

In the long-term, policy costs on electricity bills present a significant obstacle to electrification and heat decarbonisation. The Tribune group of Labour MPs has suggested that the Government could shoulder the cost of removing levies, expecting equity in return in the infrastructure funded by the levies. A more fiscally neutral approach could be to shift levies directly from electricity onto gas bills. However, this in turn risks backlash from households who rely on gas to heat their homes. Nesta have proposed combining levy reform with an expansion of the warm home discount to protect the most vulnerable households, but such changes would likely remain contentious.

Moving levies onto general taxation could cost as much as £3.2bn and, unlike more temporary support, would be challenging for the Government to unwind at a later date if energy bills came down.

Free clean electricity hours + grid flexibility

By shifting consumption to times when renewable power is plentiful, the electricity system can avoid expensive grid upgrades and reduce balancing costs. To facilitate widespread access to flexibility, think tank IPPR has proposed introducing free clean electricity hours during periods of surplus wind or solar, available to households of any tariff type.

Seahorse is currently working with Flex Machine to accelerate flexibility and consumer-led flex to reduce bills, reduce how often gas sets the wholesale price, and the need to build additional network infrastructure which ultimately ends up on bills.

Accelerate the Warm Homes Plan and retrofit

Beyond direct interventions on energy bills, Government can provide relief to households through acceleration and expansion of the Warm Homes Plan. However, multiple reports state the Energy Secretary is set to make cuts to the Boiler Upgrade Scheme as part of an effort to find £2bn in savings across the department to help pay for increased defence spending. Even before cuts, WHP programmes had seen a slow start. Analysis by Energy UK suggests the Warm Homes: Local Grant scheme is on track to spend only 18% of its allocated £500 million budget across its three-year lifetime.

Where WHP funding is deployed, there is also a risk that it is not targeting the households that need it most. National Energy Action has called for greater prioritisation of the coldest, dampest homes and a dedicated system for health-connected referrals. They have also called for a ringfenced budget for independent advice, handholding, and aftercare for the most vulnerable consumers.

Seahorse client Dimplex is advocating for Warm Homes Plan underspend to be ringfenced for an Electric Heating Upgrade Scheme. The Scheme would replace ageing electric heating with modern high-performance storage heaters in the UK's 1.9 million electrically heated homes, one in five of whom are in fuel poverty. Upgrading all of these homes would provide 8GW of flexible load shifting capacity, a significant contribution to the Government’s Clean Flexibility Target of 12-15GW by 2030.

Conclusion

None of the Chancellor’s options are without their drawbacks, and the tight fiscal situation remains a significant constraint. But this latest energy shock also presents an opportunity for more radical change. Reforms to the energy system will not only provide relief to consumers, but will set the UK on a path to more rapid electrification and accelerate progress towards net zero.