Households could save up to £200 a year on energy bills under radical reforms being urged on Andy Burnham as he prepares to enter Downing Street. The new Labour leader is examining proposals that would cut typical bills by £130 and make heat pumps cheaper to run than gas boilers, according to a plan drawn up by the thinktank Nesta.
In his victory speech on Friday, Burnham promised to reduce the price of “essentials”, and a cost of living package is expected to be one of his first announcements. The Nesta plan would change how household gas is charged and remove policy levies from bills at a cost of £3.2bn a year to the taxpayer. Making electricity cheaper relative to gas would make heat pumps more attractive and shave £130 off average bills. Andrew Sissons, director of Nesta’s sustainable future project, said: “For years, legacy policy costs have been heavily loaded on to electricity bills, making clean heating options artificially expensive.”
“Andy Burnham considers sweeping energy reforms that could cut household bills by up to £200 a year, as Octopus Energy and thinktank Nesta urge the new Labour leader to act.”
Separately, Octopus Energy has urged Burnham to overhaul the market, saying typical households could save £114 a year by reversing a previous government energy decision, and a further £75 by shifting levies into general taxation – a total saving of almost £200. The company’s founder and CEO, Greg Jackson, said: “The new prime minister has a golden opportunity to change the direction of energy bills, boosting electrification and slashing costs for families and businesses.” Octopus warned that reforming Britain’s electricity market would take two years and urged Burnham to act quickly.
The interventions come as households saw their energy bills climb by £221 in July, pushing the average annual bill to £1,862. The rise was fuelled by soaring global energy costs caused by Donald Trump’s war on Iran, intensified when Iran blocked the Strait of Hormuz, through which a fifth of the world’s oil and gas is transported. Octopus also warned that Britain’s electricity market is wasting billions because expensive gas often sets the price even when cheap renewable power is available, leading to wind farms being switched off.
Under the Nesta reforms, the government should also wipe out a backlog of consumer electricity debts at a one-off cost of £2.7bn, relieving about 2 million households and cutting the £29 a year all households pay to cover unpaid bills. The costs would have to be met in the new chancellor’s first budget this autumn, potentially through tax rises. The plan targets the controversial standing charge on gas bills, which currently adds about 29p a day regardless of usage. Moving these charges would make clean heating the cheapest option, Sissons said. However, reform will not be quick – Octopus warned that market changes would take two years, and Burnham’s team is still examining the proposals.