As colder nights approach and thermostats flick back on across the U.K., households are clinging to a rare piece of good news: energy bills could drop by £110 a year. For millions of families still reeling from years of price shocks, that’s more than a statistic — it’s a tangible difference.
The proposal, backed by the Resolution Foundation and under consideration by Chancellor Rachel Reeves, would shift environmental and social levies from household energy bills to general taxation. If implemented, the change could make energy costs fairer, greener, and more progressive — but the clock is ticking before winter arrives.
Introduction to the £110 Energy Bill Proposal
The Resolution Foundation’s analysis suggests that the average household could save £110 per year if environmental levies, which fund renewable energy and social programs, were removed from energy bills and paid instead through taxes.
These levies, currently bundled into consumer bills, make up nearly 7% of the average dual-fuel bill. Because they are flat-rate charges, every household — rich or poor — pays the same amount, creating what economists describe as a regressive system.
By moving these costs into the tax system, wealthier households would contribute more, and low- to middle-income families would see a direct reduction in their monthly bills.
Overview Table: Potential £110 Annual Savings
| Topic | Details |
|---|---|
| Potential savings | £110 per household per year |
| Proposal | Move green and social levies from bills to general taxation |
| Average current annual bill | £1,717 (Ofgem, October 2025) |
| Additional measure under review | 5% VAT cut on energy bills (worth ~£86) |
| Total potential savings | Up to £196 annually |
| Main policymaker | Rachel Reeves, Chancellor of the Exchequer |
| Expected timeline | 2026 Budget or earlier pilot |
| Backing body | Resolution Foundation |
Key Features / Overview
- Savings up to £110 per year for the average household.
- Fairer funding model — higher earners pay proportionally more via taxation.
- Environmental goals protected, as funding for renewables remains intact.
- Possible VAT cut could double savings to nearly £200 per household.
- Implementation expected in 2026, with trials or pilots possible earlier.
Why the Proposal Matters?
The U.K. energy system currently places environmental levies — to fund wind farms, solar projects, and social energy programmes — directly on bills. This means a pensioner in Hull pays the same charge as a millionaire in Mayfair.
By funding these initiatives through general taxation, Reeves could deliver a fairer structure that still meets net-zero targets.
As the Resolution Foundation explains, “A system that relies on universal surcharges is outdated and unfair. Funding it through taxes aligns cost with income, not postcode.”
Economists estimate that three in four households would benefit, with the poorest 20% of families seeing the greatest relief.
Rachel Reeves’ Political and Fiscal Balancing Act
For Chancellor Rachel Reeves, the stakes couldn’t be higher. The proposal arrives amid the U.K.’s ongoing cost-of-living crisis, persistent inflation, and high public debt.
Reeves faces three main challenges:
- Limited fiscal room: After pandemic borrowing and inflation relief, moving levies into taxation would require offsetting revenue — likely via modest tax adjustments or reallocation of spending.
- Timing pressure: With winter approaching, Reeves is under pressure to act quickly to avoid another season of fuel poverty.
- Green transition commitments: The U.K. must still meet its net-zero carbon target by 2050. Any funding shift must preserve investment in renewables.
In a recent interview, Reeves said she is “considering all options to make bills fairer before winter 2025.”
Why Energy Bills Remain High Despite Falling Gas Prices?
Wholesale gas prices have dropped nearly 50% since 2022, yet household bills remain about 60% higher than pre-pandemic levels.
Here’s why:
- Network upgrades: Billions are being invested to modernise ageing grids.
- Supplier debt recovery: Energy firms that collapsed during the 2021–22 crisis left costs to be recouped.
- Green subsidies: Funding clean energy remains expensive in the short term.
- Inflation: Equipment and labour costs have risen sharply.
Average Dual-Fuel Breakdown (Ofgem, 2025)
| Component | Cost per Year (Approx.) |
|---|---|
| Gas supply | £717 |
| Electricity | £1,000 |
| Total annual bill | £1,717 |
Impact of the Proposed Change
If implemented, households could benefit in two stages:
- £110 savings from levy removal.
- £86 additional savings from a potential temporary VAT cut on energy bills.
That’s a total of £196 per household, roughly £16 per month, enough to make a measurable difference for millions facing tight winter budgets.
For low-income families, that could mean heating their homes safely without sacrificing essentials.
Winners and Losers
| Group | Expected Impact |
|---|---|
| Low-income households | Major winners — meaningful monthly relief |
| Middle-income families | Moderate benefit; easier winter budgeting |
| High-income earners | Small tax increase to offset funding shift |
| Businesses | Potential neutrality, depending on reforms |
| Government | Gains fairness but must manage fiscal trade-offs |
| Energy suppliers | Neutral — still handle distribution, minus levies |
Expert Opinions
Craig Lowrey, Senior Economist, Cornwall Insight:
“Moving policy costs into taxation is sound economics — but the Treasury must ensure long-term funding stability.”
Doug Parr, Chief Scientist, Greenpeace UK:
“The public shouldn’t have to choose between affordable bills and a livable planet. We can, and must, fund both.”
Greg Jackson, CEO, Octopus Energy:
“Britain’s energy system is too complex. A simpler, fairer approach would help consumers and speed the green transition.”
Torsten Bell, Chief Executive, Resolution Foundation:
“Energy fairness reform is overdue. Low-income families shouldn’t carry the same burden as high-income households.”
Reeves’ Wider Energy Reform Agenda
Alongside the £110 proposal, the Chancellor’s “National Energy Fairness Strategy” is expected to include:
- Expansion of ECO4 home insulation grants.
- More investment in renewable energy generation by 2030.
- Support for off-grid rural homes.
- Smart meter modernisation for better usage tracking.
- Enhanced heat pump subsidies to replace gas boilers.
Together, these measures could lower energy use, improve efficiency, and cushion households from future shocks.
Practical Steps to Lower Your Bills Now
Even if policy changes take time, you can still cut your energy costs today:
- Install a smart thermostat: Devices like Hive or Nest can reduce heating costs by up to 12%.
- Check ECO4 eligibility: You may qualify for insulation or efficiency grants.
- Compare tariffs: Don’t overpay — switch if your current deal isn’t competitive.
- Lower boiler flow temperature: Reducing it to 60°C can save around £100 annually.
- Seal drafts and insulate: Proper insulation cuts heat loss by 30%.
Why It Matters?
The debate around how to fund Britain’s green transition is more than economic — it’s social. Millions still face fuel poverty every winter, while the U.K. must also invest heavily in clean energy.
By adopting the Resolution Foundation’s proposal, the government could deliver immediate relief to households while preserving climate commitments. Whether Reeves acts before this winter or waits until 2026, the decision could define her tenure — and the financial comfort of millions of British families.
FAQs
How much could I save under the new proposal?
About £110 per year — or up to £196 if the government also cuts VAT on energy.
When would the change take effect?
Most likely in the 2026 Budget, though pilot schemes may begin earlier.
Will this affect funding for green energy?
No. The funding remains intact but will be collected through taxes instead of bills.
Who benefits the most?
Low- and middle-income households, who currently pay proportionally more under flat-rate levies.
What else can reduce bills this winter?
Home insulation, smart thermostats, and checking for ECO4 or Warm Home Discount eligibility.
What happens if the government doesn’t act?
Bills are likely to remain near current levels, with limited short-term relief for struggling families.