We want to ensure that any intervention delivers both immediate relief and is a powerful long-term mechanism for electricity cost control, fuel poverty reduction and home decarbonisation. 

This tax-free electricity policy proposal is a strategic investment in a more affordable energy future that offers a significant return to the exchequer through reduced debt and welfare costs, and makes electricity a competitively priced fuel for every UK home.

The package would be delivered through three actions:

1. Removing legacy subsidies from bills: Offsetting the cost of the Renewables Obligation and Feed-in-Tariff on electricity bills.
2. Removing VAT from electricity: A targeted VAT cut to electricity bills.
3. Taking the ECO Levy off electricity: Adjusting the ECO levy to remove it from electricity bills,  without raising costs for the typical gas household.

This package of three policy interventions would deliver an estimated £151 annual saving for a typical dual-fuel household, with even greater savings for homes reliant solely on electricity.  

Crucially, Nesta’s analysis shows that this intervention is a strategic fiscal move that directly combats inflation, reducing the headline rate by 0.3%.

This proposal would correct the disproportionate burden on electricity bills - that carry greater taxes and levies compared to gas - and reduce the electricity-to-gas price ratio from 4.2 to 3.1. 

This vital rebalancing is also the key to making electricity-powered home heating technologies, like heat pumps, definitively cheaper to run than gas boilers. This is vital for the 18% of households that do not use gas, who often face the highest energy bills and rates of fuel poverty and energy debt. 

The approach creates the essential conditions for the upcoming Warm Homes Plan, making it easier to scale up efforts to tackle fuel poverty and secure a permanently lower-cost clean energy system for the UK.

Download the policy brief to learn more.