Britain’s electricity pricing system means low-income households are paying more on levies than on staple foods such as bread, rice, and cereal, a new report has found.
These social and environmental levies are currently placed on electricity bills at three times the rate of gas. According to the report by charity The MCS Foundation, addressing this imbalance by moving levies into general taxation would save households between £170-£530 a year on their energy bills.
Such a move would lift nearly 900,000 households out of fuel poverty, in addition to the 900,000 households already projected to rise above the fuel poverty threshold as a result of the electricity cost reductions announced in the Autumn Budget 2025, while also accelerating the transition from fossil fuel heating to heat pumps. Under the proposal to shift levies into general taxation, more than 5.8 million households would save at least £300 per year on their energy bills.
Garry Felgate, CEO of The MCS Foundation, says:
“Social and environmental levies were introduced for a very important reason: to help fund bill-cutting measures in fuel-poor homes, and develop renewable energy infrastructure. But the way these levies are applied is now working against those vital objectives and disproportionally impacting the most vulnerable.”
The analysis shows that some low-income households paid more than four times as much of their net income on electricity levies last year than better-off groups. Moving levies off electricity bills and into general taxation would save low-income households between £193 and £360 annually.
Levy reform, The MCS Foundation says, would ensure the transition away from gas also means lower bills.
In the 2025 Autumn Budget 2025, Chancellor Reeves announced that 75% of the cost of the Renewables Obligation levy would be funded by the Treasury until 2029. However, further levies are expected to be placed on electricity, driving up the proportion of bills that are made up of levies by a third by 2031.
Garry Felgate adds:
“In the Autumn Budget, the Government took some positive steps towards addressing the disparity between gas and electricity prices and set a precedent for cutting the cost of electricity by moving part of the Renewables Obligation into general taxation. But this was only a temporary, partial step. We need full levy reform to deliver a fair system that benefits all UK households and incentivises the switch to cleaner heating sources such as heat pumps.”
Matt Copeland, head of policy and public affairs at fuel poverty charity National Energy Action (NEA):
“Low-income households are paying more in electricity levies than they spend on basic foods. There must be a fairer way to pay for the transition to net zero. If we want a fair and affordable shift to decarbonisation, we must stop loading costs onto the people least able to pay.
“Moving levies into general taxation would save struggling households hundreds of pounds a year and would finally begin to rebalance a system that has been unfair for far too long. The government now has a vital chance to put fairness at the heart of energy policy and to ensure that the path to net zero deliberately lifts people out of fuel poverty.”
