John Healey has announced plans to give 20 million households a £100 payment towards their energy bills, as he sought to counter accusations that he was overlooking the financial pressures facing Britain’s squeezed middle.
The Chancellor said the £2.6billion package would benefit households living in council tax bands A to D as he delivered his first Budget.
The move mirrors the £9.1billion Energy Bills Rebate unveiled by former Conservative prime minister Rishi Sunak in February 2022, after the war in Ukraine drove energy prices sharply higher.
Mr Healey also announced that a VAT break on electricity bills, introduced after he took over at No11 earlier this year, would remain in place until July.
Before his first major fiscal statement, promoted as offering families some “breathing space”, the Chancellor confirmed that standing charges on gas bills would be abolished for about 23 million homes—but not until next year.
Critics warned the decision would do little to ease household costs during the coming winter.
Mr Healey, who succeeded Rachel Reeves earlier this year, said he wanted to overhaul the UK energy market and reduce bills for families under financial strain.
However, he also reaffirmed the Government’s commitment to reaching Net Zero by 2050, arguing that “clean power” would be central to his strategy for bringing down costs.
“Let me say this to families at home. I know that with the conflict in the Middle East, rising energy bills are a real worry,” he told MPs.
“I know that people look to Government at times like this, not to solve all their problems, but to give them a bit of breathing space.
The Chancellor said the £2.6billion package would go to households in council tax bands A to D as he presented his first Budget
MoneySavingExpert founder Martin Lewis, who met the Chancellor at No11, said that although the “moral hazard” charge had been removed, four in ten households could pay more because of higher unit rates
“So today I’m taking one further step. This winter, for 20 million households in council tax bands A to D, I am announcing a £100 energy payment for households, paid directly into people’s bank accounts to deal with rising energy bills.
“That’s a £2.6 billion scheme to take the pressure off in the coldest months and see people through to the spring.”
A gas standing charge is a fixed daily fee added to a bill regardless of how much gas is used. For a typical household, it costs about £108 a year.
The Treasury said Mr Healey would ask energy regulator Ofgem to scrap the charges in 2027, or as soon as possible afterwards. The change could save 60 per cent of families around £45 a year.
But before the Budget, MoneySavingExpert founder Martin Lewis, who met the Chancellor at No11, warned that even with the standing charge removed, four in ten households could end up paying more because their unit rate would rise.
Other specialists have also cautioned that the reform could disadvantage pensioners and larger families, who typically use more heating.
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Dhara Vyas, chief executive of industry body Energy UK, described the announcement as “good news” for many customers, but said targeted help would be needed for low-income households that might otherwise lose out.
Tory energy spokesman Andrew Bowie said: “Next week in large parts of the UK, the temperature is going to get close to freezing. Because of these changes, if you live there and heat your home with gas and want to turn on the central heating… Labour just made your life much more difficult and far more expensive.”
Mr Healey has also allocated £5.5billion to increase benefits received by 10 million people by 3.5 per cent, matching inflation. Wider welfare reforms have been postponed until later in the Parliament.
Richard Neudegg, director of regulation at Uswitch.com, said: “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.”
Energy bills increased in October after Ofgem’s price cap rose by 4 per cent, while forecasters have warned that costs could climb by almost £300 more from January.
The latest forecast from Cornwall Insight suggests the price cap could rise by another 16 per cent to £1,999 a year on January 1. That would be £276 above the October-to-December level and the sharpest increase since January 2023.
To provide some relief, the Government has temporarily removed the 5 per cent VAT charged on electricity bills until March 31 next year, reducing annual costs by roughly £45.
Households will continue to pay 5 per cent VAT on gas.
Mr Burnham told the Commons last week that he had asked Mr Healey and Energy Secretary Miatta Fahnbulleh to consider abolishing standing charges.
The charge does not cover the energy itself. Instead, it pays for delivering gas and electricity to homes and businesses, including essential maintenance and infrastructure improvements.
There are concerns that low-income households with high energy use could be worse off if the costs are simply transferred into the unit rate portion of gas bills.
The Treasury said ministers would “set out in due course targeted mitigation for a small number of households”. It added that those “not seeing an automatic saving will still have better control over their bills without the worry of affording the standing charge”.
Mr Healey has limited room for major giveaways because of pressure on the public finances, which has been intensified by international market instability linked to the Iran war.
He is retaining the fiscal rules introduced by predecessor Rachel Reeves. These require day-to-day spending to be funded through taxation rather than borrowing by 2029-30, while public debt as a share of the economy must also be falling by then.
READ MORE:
Standing charges on gas bills are being scrapped – what does the change mean for your energy costs?
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