The incoming Labour leader is examining a comprehensive energy policy proposal developed by thinktank Nesta that aims to restructure how household energy is charged and priced. The plan would reduce annual energy costs for typical households by approximately £130 while making electric heat pumps more economically competitive with traditional gas boilers.
The proposal involves several key components. It would modify the gas standing charge system, which currently adds fixed daily costs regardless of consumption and is viewed by some as disproportionately affecting lower-income households. The reforms would also remove certain policy levies from electricity bills and adjust value-added tax rates on electricity. These changes are projected to cost taxpayers approximately £3.2 billion annually in foregone revenue.
Another element would address consumer debt accumulated on electricity accounts. The plan recommends clearing the backlog of unpaid electricity bills affecting roughly 2 million households at a one-time cost of £2.7 billion, which would also reduce the annual surcharge all households currently pay to cover bad debts. According to Nesta’s analysis, the lowest-income 84% of households would see bill reductions of approximately £22 annually under the restructured system.
Burnham has indicated that a comprehensive cost-of-living package, which would likely include energy measures, represents a priority for his administration. Any such initiatives would require funding through the new chancellor’s first budget later this year, potentially necessitating tax adjustments or other revenue measures. The timing aligns with rising energy costs, as household energy bills increased 13% earlier this year to an average of £1,862 annually, with further increases expected this winter due to global market conditions.
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