Addressing the 2026 energy price crisis

The US-Israel war with Iran has triggered a global energy crisis, with the wholesale price of gas soaring by over 65% in recent weeks. It has also brought into sharp relief the UK’s lack of resilience in the face of such energy shocks, where our current over reliance on expensive, imported gas continues to leave us vulnerable. The impact on domestic energy bills is expected to be significant and households across the country are bracing for increases in their bills when the new energy price cap comes into effect at the start of July. Current predictions suggest a possible £288 annual increase, but as energy prices begin to affect inflation, households could be faced with increased costs across a range of markets. 

Last month in the Commons the Chancellor, Rachel Reeves, set out her framework for an upcoming energy bills support package, stressing that it would be: 

• responsive to the impact of the conflict, and
• responsible with the public finances. 

Her statement signalled that we should not expect support for everyone, with media headlines affirming that Reeves had ‘ruled out universal support on energy bills’. A lively and cross-party political debate has followed about whether the Government’s current approach is the right one, and if support should be targeted (either narrowly to households in receipt of means-tested benefits, or more widely according to household income) or universal, such as an Energy Price Guarantee (EPG) 2.0.

Reeves is right to learn the lessons of the costly and regressive EPG introduced by the previous Government as a response to the 2021 energy price crisis, and we agree that this may not be the right approach this time round. 

However, targeting support is tricky when Government lacks the necessary tools. For example, one option would be to limit support only to households in receipt of means-tested benefits (for example, through the Warm Homes Discount). But this is unlikely to be sufficient to meet the current moment, and in fact may even be met with significant public dissatisfaction. This is because affordability challenges extend higher up the income distribution, with data from the family resources survey showing that nearly 40% of households that are struggling to stay warm are not in receipt of means-tested benefits. Anxiety about affording energy bills only begins to subside when households’ incomes reach above £100,000. Targeting support only to households in receipt of means-tested benefits also fails to capture those with high energy use due to a medical need or family size. 

The Chancellor seems aware of this challenge, and in an interview with the press last week Reeves said that support with energy bills ‘would be based on household income’, suggesting the introduction of some form of social tariff. This ambition to direct support towards a broader group of the population who will be struggling with their energy costs is welcome, but targeting support via household incomes is not simple. In reality, this would require the Government to quickly build a complex new data infrastructure (with data matching using HMRC records on the scale of the UK population), combined with systems for managing abuse – something that is not likely to be feasible in time for this winter.  

We believe there is another approach that would help contain costs, deliver widespread support in a progressive way and utilise existing data infrastructure. This is to introduce a universal, discounted block of ‘essential’ energy. By using consumption data and information on household composition (currently more readily available to both the Government and energy companies), this would provide support to all households but, in a progressive way: providing the deepest level of bill support to households on the lowest incomes. This approach would help to rebuild economic security for households and provide additional protection when future shocks occur. 

Lessons from the previous energy price crisis

During the last energy price crisis in 2022, the Government responded by implementing the energy bill support scheme (a series of flat cash deductions / credits for all households) and the energy price guarantee (a cap of £2,500 on annual energy bills). Both interventions were universal in nature and sat alongside more targeted cost of living measures that were primarily delivered through the means-tested benefits system.

In the aftermath of the crisis, the energy price guarantee (EPG) in particular has been subject to criticism. At a cost of £23 billion, the EPG subsidised all energy consumption above the price cap. While this was a progressive intervention as a share of household budgets (where lower-income households spend a greater proportion of their income on energy bills) in cash terms it gave more money to high-income households which were more likely to consume energy above the capped rate. Not only was this poorly targeted, it also removed the incentive for high-income households to reduce excessive levels of energy demand, for example by investing in energy efficiency measures or low carbon technologies. 

Although the Government’s crisis response was not perfect, it was welcome, and it was clearly necessary for a broad-based intervention to support household incomes at a time of major economic shock. Government has also taken some significant steps forward in the intervening years to limit the effects of future price shocks. Since 2021 the share of renewables within the energy mix has been steadily increasing, reducing our reliance on volatile international markets. The recent announcement of the Government’s warm homes plan also provides a pathway for beginning to reduce household demand, which in turn will insulate homes from higher prices. 

But despite these improvements, there remains a significant hole in the Government’s toolkit. While eligibility for the warm home discount has been expanded since the previous crisis, the Government is no closer to being able to distribute bill support to a wider group of households. This is crucial if the Government wants to meet the scale of the energy affordability challenge and to navigate the shocks our energy system, and country, is facing.

Scale of the challenge

Before the US-Israel war with Iran started, many households were still struggling to recover from the previous energy price crisis. Bills remained £600 higher than in 2020, energy debt had doubled to £4.5 billion, and three quarters of Britons were worried about their energy bills heading into last winter. Energy bills are consistently named by the public as the primary driver of the wider cost of living crisis, and as the living cost that has the biggest impact in their daily lives.

Data from the 2023/24 Family Resources Survey shows that the struggle to maintain a warm home extends up the income deciles, with over 15% of families in the fifth income decile experiencing heat deprivation. Data from More in Common also reveals that anxiety about energy bills affects higher-income households. Among households with an income between £50,000 and £59,000, 35% report that they are very worried about energy bills this winter, and a further 36% say they are somewhat worried. 

Even before the start of the US-Israel war with Iran, there was a strong sense amongst the UK public that the energy support measures announced in the UK Autumn 2025 Budget did not go far enough, with recent 2025 polling carried out by More in Common on behalf of JRF showing 85% of respondents felt further action is needed. Focus groups held as part of this work told a similar story, with participants reflecting that the £150 discount announced last year would only provide a short-term fix. These groups took place against the backdrop of the fourth week of the war, and participants also shared concerns about potential future price spikes.

The affordability crisis is already having a significant impact on the public’s attitudes towards the Government and contributing to a wider sense of disillusionment with mainstream politics. The struggle to keep up with high energy bills is contributing to the sense many Britons have that no matter how hard they work they will never be able to ‘get ahead’ and enjoy a comfortable life, instead focusing on just surviving and getting by. Failure to substantially reduce energy bills feeds a wider perception that the Government is incapable of addressing the country’s ‘core challenges’, with the lack of hope that things will ever get better reducing confidence in Government and driving a ‘roll the dice’ approach to politics amongst many Britons.

A universal discounted block of essential energy

Energy is an essential service, and the Government must reflect that in its approach to solving the energy affordability challenge. Rather than repeating the EPG and subsidising all consumption, the Government should adopt a model that gives all households a universal discounted block of essential energy. Like an income-based social tariff, this would deliver progressive outcomes but without the data-matching challenge related to income. It would also lay the foundation for a future energy system in which energy consumption is based on need rather than just on ability to pay, while the universal elements might help to overcome some of the division that currently pits those not in receipt of government support against those who are. This approach is popular with the public with the More in Common polling for JRF from December 2025 revealing that over 70% of the public supported the policy.

In our proposal, an initial ‘essential’ block of energy consumption is charged at a discounted rate while consumption above that level is charged at the current market rate. The discount could be funded by a combination of general taxation and ring-fenced funds from the windfall tax or taxes on excess profits elsewhere in the energy system. 

We have used an indicative essential level that represents 50% of typical annual electricity and gas consumption. 

Our approach includes an additional per child consumption allowance (equal to the ‘essential’ block) to account for the relationship between household size and consumption and ‘carve outs’ for protected groups to ensure that those in receipt of means-tested and disability benefits receive the discount on all their energy consumption. 

The universal discounted block could be operationalised using existing data infrastructure and clear ministerial instruction.  

Comparing approaches

By varying support by family composition and/or including ‘carve outs’ for those on means-tested and disability benefits, a universal discounted block of energy is, in cash terms, the most progressive way of getting support to the households that need it. We have modelled each policy at a cost of £5 billion, which is reflective of the cost of an EPG-style intervention that would cap prices at the April 2026 price cap, based on current cost projections for July 2026. In this scenario, an EPG-style intervention would distribute £3.7 billion of support to gas bills and £1.3 billion to electricity. We have mirrored that ratio of support in the universal block option. It is worth noting that the cost of the EPG intervention could be lowered if the Government were to choose to allow some price rise.  

The intervention is both universal, in the sense that all households will receive some level of support, and targeted, in the sense that lower-income households receive the greatest level of cash saving. 

A universal discounted block of energy distributes support more efficiently and progressively than an EPG.

For example, the chart above shows that it would be possible to offset all the rise in costs for the lowest-income households (deciles 1-3), while tapering support for those on middle to higher incomes. This would also constrain the cost of an intervention, saving around £0.5 billion compared to the previous universal discounted block of energy we tested. 

Our previous work has explored some of the other options currently up for discussion, namely reforms to the warm homes discount, or the introduction of an income-based social tariff. The former is inherently limited in its scope to households in receipt of means-tested benefits, while the latter (which would require data matching on the scale of the UK population) continues to pose feasibility challenges. If data matching on the basis of income were achieved, that functionality could be used to replace means-tested benefits as the eligibility requirement for receiving a discount on all energy consumption. 

While implementation of the full universal discounted block may take time, we can look to responses to the previous energy crisis for inspiration for more immediate measures. After Ukraine was invaded, Germany, Austria and the Netherlands all implemented discounts on a proportion of typical energy consumption, retaining incentives to reduce consumption and stemming inflation. A universal discounted block of essential energy should be the guiding principle used to determine the Government’s response to the current price crisis. 

An energy system that works for people and the planet  

The current energy price crisis underlines the importance of the transition to an energy system that works for people and the planet. Investment in renewables is a critical piece of the puzzle and will insulate UK households from the volatile gas market in the long term. But even before the US-Israel war with Iran began, households were struggling, and a direct intervention on bills felt necessary.

Unlike an EPG or a flat cash payment, a universal block of discounted essential energy manages to deliver support that is both universal and progressively targeted. Introducing a new policy mechanism for determining the price of an ‘essential’ block of energy also builds much needed resilience into the energy billing system. 

However, it is worth noting that there are significant limitations to changing the billing system without addressing the underlying causes of high prices. By leaving the drivers of high wholesale prices unaddressed, the Government remains responsible for the effects of the market – whether that’s ‘sellers inflation’ or the upwards distribution of profits to the top 1% of individuals. The Government needs a bold vision for a progressive energy system, from retail all the way to generation, that will protect households in an increasingly unpredictable world. A universal discounted block of essential energy should be the foundation of that vision.