Households in the UK pay roughly 28 pence per kilowatt-hour for electricity, four times the wholesale cost of generation and more than double the price of gas. This gap, the widest in Europe, is not a market quirk. It is the result of successive governments loading green policy costs, network upgrades, and social levies onto electricity bills while leaving gas largely untouched.
As reported by GB News, business groups are now telling the new Labour government to tackle the issue ‘head-on’, warning that firms are missing out on support while paying some of the highest industrial electricity prices in the developed world. But the problem hits households just as hard. The average home using 2,900 kWh of electricity and 12,000 kWh of gas a year is effectively subsidising the green transition through a skewed pricing system that punishes electrification, exactly the wrong signal for a government aiming to decarbonise heating and transport.
The policy mess behind the price gap
Ofgem’s latest price cap breakdown shows that wholesale costs account for only about 40% of the typical electricity bill. The rest is a tangle of network charges (about 20%), policy costs (around 25%), and VAT plus supplier margins. Many of those policy costs, the Renewables Obligation, Feed-in Tariffs, Contracts for Difference, are fixed per kWh consumed, meaning they hit electricity harder than gas. The Climate Change Committee has repeatedly warned that this structure disincentivises heat pump adoption, because running an electric heat pump currently costs more per unit of heat than a gas boiler, even though the heat pump is three to four times more efficient.
The catch is that shifting those levies to general taxation or to gas bills would be politically toxic. No government wants to announce a ‘gas tax’ even if it would make electricity cheaper. But the current arrangement means households who install solar panels or a heat pump are effectively paying twice: once through the levies on their electricity bill, and again through the upfront cost of the technology.
What it costs a typical 3-bed semi
Take a typical 3-bedroom semi-detached house in the Midlands, using 3,500 kWh of electricity and 11,500 kWh of gas per year. At current price cap rates (July 2024), the annual electricity bill is roughly £980, of which about £250 is policy costs. The gas bill is about £805, with only about £60 in policy costs. That household is paying £190 a year more in hidden levies on electricity than on gas, money that could otherwise fund insulation or a heat pump install.
If that household switched to a heat pump and solar panels, their electricity consumption would rise to around 6,000 kWh, but gas use would fall to near zero. The net bill saving depends on the heat pump’s efficiency and the solar generation, but early adopters typically report annual savings of £200–£400 after the upfront investment. The Boiler Upgrade Scheme, which offers £7,500 towards a heat pump, significantly reduces the payback period from around 10 years to under 6 in many cases.
Three practical moves for homeowners
First, check your electricity tariff. Many homes are still on standard variable rates that include the highest standing charges. A fixed-rate deal can save £50–£100 a year, though the market is volatile and deals are scarce. Second, consider a heat pump now, not later. The grant is guaranteed until at least 2028, but installation slots fill up quickly in autumn. Third, solar panels with a battery can cut your electricity bill by 60–70%, and the export tariff (Smart Export Guarantee) pays you for surplus power at about 15p/kWh. The combined system costs roughly £7,000–£10,000 but can pay back in 8–12 years at current prices.
The structural problem of high electricity prices will not be solved by individual action alone. Labour’s promised review of energy market design, expected later this year, must address the levy imbalance. Until then, the most effective response for a homeowner is to reduce reliance on grid electricity and gas simultaneously. Insulate first, then electrify, and make sure you claim every grant available.
Frequently Asked Questions
The main reason is that green policy costs, subsidies for renewables, social schemes, and network upgrades, are added to electricity bills rather than gas bills. These levies make up about 25% of the electricity unit price, compared to less than 10% for gas. The government has not rebalanced these costs, partly because shifting them to gas would raise heating bills for millions of homes.
Yes, because a heat pump uses 3–4 times less energy to produce the same heat. Even at 28p/kWh, a heat pump with a coefficient of performance of 3.5 delivers heat at about 8p/kWh, comparable to gas at 7p/kWh. The savings come from the efficiency, plus the £7,500 government grant. However, savings depend on good insulation and correct sizing.
