£100 winter energy payment will ‘barely dent’ increases forecast for January

A £100 payment to help 20 million households with energy bills will “barely dent” the rise predicted for January, campaigners have warned.

The Chancellor said the payment, to be paid directly to the bank accounts of households in council tax bands A to D at a cost of £2.6 billion, would give “breathing space” on energy bills.

It comes alongside John Healey’s announcement that the VAT cut on electricity bills is to be extended to July, and gas standing charges are to be shifted to unit rates, with similar reforms to follow for electricity bills.

Campaigners had warned the Government needed to act to protect households from soaring energy costs after Ofgem’s price cap rose by 3.6% to £1,723 for a typical household on October 1, with a further rise of around 22% forecast in January.

Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said: “The Chancellor talked the talk on energy bills, but ultimately failed to walk the walk.

“Wholesale gas prices have tripled since February and bills are expected to rise further during the sixth winter of high energy costs.

“Yet the only immediate support is a payment that will barely dent the predicted rise households face in January. Because it is paid directly into household accounts in England, it may not even be spent on staying warm this winter.

“Beyond this winter, the Chancellor’s commitments appear lukewarm at best. Keeping VAT off electricity until the summer and moving older renewables on to fixed contracts are welcome steps towards breaking the link between gas and electricity prices, but these do not go far enough.

“Neither does a vague cost control commitment nor shifting standing charges onto unit rates which simply moves the cost around and may actually harm some high energy use, low income households.

“We know that the majority of the public are worried about their energy bills in January, but sadly today’s Budget will do little to ease those fears.

“We needed a Budget that set out substantial immediate help and a long term plan to get Britain off gas and heating oil for good, but instead we got more piecemeal support and vague future promises.”

Citizens Advice chief executive Dame Clare Moriarty said: “We welcome efforts to ease the relentless cost-of-living squeeze. Additional support this winter will give most households a helping hand, but significant gaps remain.

“With energy prices expected to soar, adding £60 a month to already inflated bills, many are left facing another difficult winter.

“For people hit the hardest, more support will be needed and without further action, shifting gas standing charges into unit prices risks punishing people on low incomes with higher heating needs.

“To make a real difference now and beyond, the Government must go further, ensuring support is targeted and reaches those with the greatest energy needs, including families with children and disabled people.”

Cornwall Insight, which provides widely respected energy price forecasts, warned the savings from the gas standing charge shift would be “small” in relation to recent bill rises, but said it could also give the transition to heat pumps a boost.

Craig Lowrey, principal consultant at Cornwall Insight, said: “Scrapping the gas standing charge from as early as 2027 is a broadly progressive move that may help lower-income households who tend to use less energy.

“Given the timeline, it is unlikely to ease the high costs this winter, and the savings will be small compared with recent bill rises, but with the cost of living still hitting budgets, any reduction will be welcome when it comes.

“Shifting more of the cost on to each unit of gas could also give the energy transition a boost, making heat pumps a more attractive option against a gas boiler for higher-use households.

“There are trade-offs, however, as the money still has to be recovered. Higher unit rates mean people in badly insulated homes, larger families or those who need to keep the heating on to manage a health condition could end up paying more.

“Some of them are the same vulnerable households this policy is meant to help, so making sure that they see the intended benefits of this change will be essential.”

Dhara Vyas, the chief executive of Energy UK, which represents firms, also welcomed the move as “good news” for many customers, but warned it would be important to support those low-income households who could otherwise lose out.

She said: “Our latest report with Mitsubishi Electric on reducing the price of electricity relative to gas – also known as the spark gap – to accelerate electrification recommended moving the gas standing charge on to the unit rate from April 2028, and stressed that the change needed to be accompanied by a social discount scheme to protect low-income households who have no choice but to use a lot of gas.

“Standing charges cover the fixed infrastructure and operational costs required to keep homes connected to the energy system, regardless of how much gas or electricity is consumed.

“These costs need to be recovered elsewhere and as any change will create winners and losers, it needs to be introduced carefully. So it is critical the Government and Ofgem work closely with industry and consumer groups on implementation to avoid negative consequences.”

Richard Neudegg, director of regulation at Uswitch.com, said: “Moving gas standing charges on to the unit rate is a sensible idea for the longer term.

“Paying a daily gas standing charge can grate for households that use very little gas, and can feel illogical over the summer or when homes have the heating off.

“Households that use less gas, such as those living in smaller homes, should benefit when this comes in. It will also give relief to those who have switched to electric heating but kept a gas connection and find themselves paying a standing charge for a service they don’t use for heating.

“But these costs won’t disappear. They’ll move into the price of each unit of gas, meaning that those using a lot of gas could be worse off.

“Based on current rates, a household using 7,000 kWh of gas a year could be about £40 better off under these changes, while a home using 14,000 kWh could be £25 worse off. A household using the typical 11,500 kWh shouldn’t see any change in what they pay.

“The Treasury says these changes will happen ‘in 2027 or as soon as possible after’. In the meantime, consumers face a difficult winter with further price cap increases on the horizon.”