The average UK household pays £189 a year in policy costs on its electricity bill, about a fifth of the total. That levy, which funds renewables, social schemes, and insulation programmes, sits almost entirely on electricity rather than gas. Employers and energy companies have now written to the new Prime Minister demanding that this imbalance be corrected.
As reported by Reuters, the letter, signed by the CBI, Energy UK, and major suppliers, calls for a ‘rebalancing’ of environmental and social levies away from electricity and onto gas. The logic is straightforward: electricity is the fuel of the future for heat pumps, EVs, and heat networks, but today it carries four times the policy cost of gas per kWh.
What it means for a typical 3-bed semi
Ofgem data shows that policy costs add roughly 8p per kWh to electricity but only 2p per kWh to gas. For a household using 12,000 kWh of gas and 3,000 kWh of electricity a year, that’s a total levy of about £480 on gas and £240 on electricity. If half the electricity levy were moved to gas, your electricity bill would drop by £120 and your gas bill would rise by about £60, a net saving of £60. Some industry estimates suggest a full rebalancing could save households £100–£150 annually.
The catch is that 85% of UK homes still heat with gas. Those homes would see their gas bills rise modestly. But for the 1.8 million homes that already have heat pumps, or the 500,000 with solar panels, the saving is pure gain, and it improves the economics of switching.
EPC impact and the green upgrade case
Energy Performance Certificates measure the cost of heating and powering a home. If electricity becomes cheaper relative to gas, homes with heat pumps, solar panels, or battery storage will score higher. That matters because from 2025, landlords must meet EPC band C for new tenancies, and the government is consulting on band C for owner-occupied homes by 2035.
The Energy Saving Trust calculates that a typical heat pump installation costs £7,000–£13,000 after the Boiler Upgrade Scheme grant of £7,500. A £120 annual saving on electricity cuts the payback period by roughly a year. Not transformational, but meaningful, especially when combined with falling heat pump prices and the new 0% VAT on installations.
Who wins, who loses, and what to do now
The obvious winners are households that have already decarbonised their heating. The losers are those on low incomes who cannot afford to switch and will face higher gas bills. The government already has the Warm Home Discount and Winter Fuel Payment to cushion the blow, but these may need expanding if gas levies rise.
Yet the bigger picture is about incentives. A tax system that punishes electricity discourages the very technologies the UK needs to meet its 2050 net-zero target. The Climate Change Committee has repeatedly called for this rebalancing. So has the National Infrastructure Commission. The new PM’s response, likely in the October Budget, will signal how serious this government is about household decarbonisation.
Homeowners considering a heat pump or solar array should monitor the Budget closely. If the levy shift is confirmed, the case for switching strengthens immediately. For now, the simplest action is to check your EPC and compare your electricity and gas costs per kWh. If you are paying more than 28p per kWh for electricity, a time-of-use tariff or a solar battery could start saving you money even before the tax changes arrive.
Frequently Asked Questions
Yes. A typical heat pump uses 4,000–5,000 kWh of electricity per year. If policy costs drop by 4p per kWh, that saves £160–£200 annually, narrowing the running cost gap with gas boilers.
The letter to the PM asks for changes in the next Budget, likely October 2024. If enacted, the shift would probably be phased over two to three years to avoid sudden gas price spikes.
