Energy bills discount could have included all low-income households for just £700m extra

The chancellor’s energy bills discount, announced in today’s autumn budget, will exclude over 1 million low-income households and could have been made universal for just £700m extra, according to analysis from the New Economics Foundation (NEF), released today.

The chancellor announced both a universal £12 VAT relief on electricity bills, and a £100 energy bill rebate for the 80% of households living in council tax bands A‑D. Households receiving both discounts will save £112 on their energy bill for the first half of 2027. But new NEF analysis has found that the typical bill could rise by £420 in first six months of next year, meaning that a typical household in council tax band A‑D will still see their energy bills rise by £308.

Households living in council tax bands E‑H will miss out on the £100 bill discount. Today’s analysis finds that these households currently have energy bills around 22% higher than those who can expect the chancellor’s support.

NEF economists say that council tax bands are a poor measure of household budget pressures. The analysis finds that those households who will not receive support are not necessarily better off: over 1 million households in the bottom third of earners will miss out. These are typically larger households and include over 400,000 pensioner households and over 200,000 households with children. These households will be exposed to the full brunt of energy bill rises over the winter, as energy bills rise significantly higher than their peak during the crisis in 2022/​23.

NEF analysis finds that for only £700m extra, the chancellor could have expanded the £100 discount to all households, ensuring that no low-income household misses out.

In addition, NEF economists argue that the chancellor has missed an opportunity to use energy bill discounts to reduce the headline inflation rate.

A universal discount could have been applied directly to unit rates rather than as a cash payment, which would feed into how officials measure the headline inflation rate, creating other economic benefits. Lower energy bills would reduce the inflation rate, reducing pressure on the Bank of England to increase interest rates, and make government borrowing cheaper.

Dr Alex Chapman, head of economic and environmental policy at the New Economics Foundation said:

“The chancellor has shown the right instincts in its energy policy but has got the scale and the design wrong. Today’s announcements do not meet the scale of the coming crisis, and too many vulnerable households will miss out.

For a frankly trivial amount of money, the chancellor could have offered so much more value and protection. Not only that, but a better designed scheme, like the national energy guarantee, would also have lowered inflation and cut the pressure on the Bank of England to raise interest rates.”

NEF are urging the government to bring in a ​“national energy guarantee”, which would cap a block of essential energy for every household at late 2024 prices.

Notes

The New Economics Foundation is a charitable think tank. We are independent of political parties and committed to being transparent about how we are funded.

Household income and composition data is sourced from the 2024 – 25 edition of the Living Costs and Food Survey (LCFS), published by the Office for National Statistics (ONS).

The £12 VAT relief figure refers to the chancellor’s claims that next year’s energy price cap will reduce by £50 due to the VAT relief on electricity bills being extended from the first to second quarter of next year. However, the energy price cap figure refers to an annualised energy price cap, while today’s additional VAT relief is only planned for the second quarter of 2027. As a result, the VAT relief is currently only guaranteed to cut an additional £12 off energy bills in 2027.

Further information about the national energy guarantee can be found at https://​newe​co​nom​ics​.org/​2​0​2​6​/​1​0​/​g​o​v​e​r​n​m​e​n​t​-​m​u​s​t​-​a​c​t​-​t​o​-​p​r​o​t​e​c​t​-​e​s​s​e​n​t​i​a​l​-​e​n​e​r​g​y​-​c​o​n​s​u​m​p​t​i​o​n​-​f​o​r-all