Andy Burnham, who recently became Labour leader, is considering an energy reform package designed to lower household costs on essential utilities. The proposal, developed by the thinktank Nesta and currently under review by Burnham’s team, aims to restructure how household gas charges are assessed and remove certain policy levies from energy bills.
The core mechanism involves adjusting the standing charge applied to gas bills—a fixed daily fee currently around 29 pence—and redirecting it into overall usage costs. This shift would disproportionately affect higher-income households that consume more gas, thereby reducing bills for approximately 84% of lower-income households by an average of £22 annually. The adjustment would also make switching to electric heat pumps more financially viable by reducing the relative cost advantage of gas heating.
Additional components of the package include removing renewable energy subsidies from household electricity bills and redirecting them into general taxation, projected to save £42 per year on electricity costs. A further reduction in VAT on electricity bills is also proposed, delivering an estimated £41 annual savings. Collectively, these measures are calculated to provide approximately £130 in yearly savings for most UK households while making electric heating systems more economically competitive than traditional gas boilers.
The proposal carries a taxpayer cost of approximately £3.2 billion annually. Nesta also recommends clearing the backlog of unpaid electricity consumer debts through a one-time government expenditure of £2.7 billion, which would benefit roughly 2 million households and reduce the annual charges all households currently pay to cover unpaid bills. Implementing such a package would likely require funding through tax adjustments in the upcoming autumn budget. Burnham has indicated that no final decisions regarding his cabinet appointments have been made, with announcements expected in the coming days.
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