An Affordable Energy Guarantee

Introduction

We should all be able to afford the energy we need to live a decent life. But decades of privatisation, combined with our continued reliance on expensive, imported gas, has pushed bills to unacceptably high levels and contributed to our cost of living crisis.

But it doesn't have to be this way. Energy is an essential service, and the Government can redesign the system so that everyone can afford their bills and weather future uncertainty.

An Affordable Energy Guarantee would provide a portion of cheaper energy to all households, designed to cover a typical household’s basic energy use.

All households would receive a unit-rate discount on energy beneath a threshold, with energy that is consumed above that threshold charged at the current market rate. This support would be provided to everyone, but the amount would be adjusted for household size, with extra support for people on very low incomes and those with high energy needs.

Introducing an affordable energy allowance would help provide stability now while smoothing the path to cheaper renewable energy in the future.

The problem

The global energy crisis triggered by the US-Israel war with Iran has put a spotlight on high energy bills in the UK and the lack of protection for households when price shocks occur.

When the new energy price cap comes into place in July, households will start to feel the effects of this current crisis, with average annual bills increasing by £221. The situation is likely to get worse as we head into this winter, when energy needs increase and there is the potential for further price cap rises.

But even before this most recent crisis, too many households were struggling to maintain a warm home, and energy bills were already at unacceptably high levels. Energy debt has doubled in the past 3 years to £4.5 billion, and energy bills are consistently named by the public as the number one driver of the cost of living crisis, and as the cost that has the biggest impact on their daily lives.

This affordability crisis is the result of a privatised system that lets energy companies — in particular network operators — make excess profits, coupled with an over reliance on expensive, imported gas that leaves us vulnerable to price spikes. This means that when international events like the invasion of Ukraine or the war in Iran trigger a wider crisis, it makes a bad situation worse for households in the UK.

Whilst the situation is most acute for households living on the lowest incomes, energy affordability challenges extend up the income distribution. Data from the 2023/24 Family Resources Survey shows that over 15% of families in the fifth income decile experience heat deprivation.

More broadly, More in Common research reveals that anxiety about affording energy bills affects higher-income households too. In fact, concern only begins to subside once household income reaches above £100,000. While our policy prioritises the material needs of low- and middle-income households, the widespread distribution of anxiety about energy bills demonstrates the political salience of the issue.

In focus groups conducted by More in Common on behalf of JRF over March and April 2026, participants described bills rising without ever returning to previous levels. Across all segments of the public, energy costs were felt to be causing a strain on household finances.

One participant summed up the sentiment expressed across the groups by saying they were:

…being squeezed and squeezed and squeezed constantly.

Participants reported changing their behaviour in response to rising costs, from using less heating to running appliances selectively at certain times. These findings are echoed in polling carried out by More in Common on behalf of JRF in May 2026, where 20% of respondents had lived in a house that was uncomfortably cold as a result of high energy bills. 33% had also experienced increased stress or anxiety, and 18% had problems sleeping because of worries about bills.

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 Autumn 2025 Budget did not go far enough, and that they would only provide a short-term fix. 93% of respondents in this recent poll agreed that more should be done to bring down the cost of energy bills, and 71% of respondents said they were now also worried that the impact of the war will increase their energy bills this winter.

For many Britons, experiences of high energy bills feed directly into wider disillusionment with mainstream politics. The struggle to keep up with rising bills contributes to people’s sense 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. Given how wide spread that experience now is, policy interventions that only provide support to those on the lowest incomes are often met with scepticism and dissatisfaction by the public. Confidence in Government to fix the energy bills problem is low, with 73% of respondents in the More in Common polling saying they did not believe the Government has a clear and effective plan to bring down energy bills.

This underlines the importance of designing policy interventions that are progressive and that provide support to the majority of households. Not only does this ‘progressive majoritarianism’ help to address the breadth and depth of the policy problem, but it could also play an important role in strengthening our social contract. While there has been a long policy debate about the relative merits of universal vs targeted approaches, recent evidence shows that many of the most effective benefits and services are both targeted and universal.

For example, systems in which everyone can access child benefits, but those with the most need receive more, reduce child poverty to a greater extent than policies that are wholly universal or targeted. This approach may also play an important role in retaining public support for net zero by providing a safety-net for all households throughout the transition. Our approach is popular with the public (More in Common, 2026); 75% of the public would support the Government implementing an Affordable Energy Guarantee, compared to only 5% who would oppose it.

Affordable Energy Guarantee

We believe that all households should have access to the energy they need to live a decent life.

In our proposal, all households would receive a unit rate discount on energy beneath a threshold. Any energy that is consumed above that threshold would be charged at the current market rate. The standard, universal threshold for discounted energy could be set at 50% of typical consumption based on Ofgem domestic consumption values¹. But this threshold would also vary upwards in response to means and needs.

Figure 1 illustrates how the portion of cheaper energy would be applied in different households. All households receive the same initial portion of discounted energy, but households with additional energy needs then receive a variety of ‘top-ups’. Households with children receive additional equal increments for every child, and households in receipt of means tested or disability benefits receive the discounted unit rate on all their energy consumption.

The discount would be applied to both electricity and gas units. However, there are several ways the policy could be designed to support electrification in particular. Firstly, electricity-only households — both those with a heat pump and households with traditional electricity-only heating — should have their unused gas allowance ported across to provide additional units of discounted electricity to ensure that they are not penalised for electrifying.

Secondly, the discount could be weighted so that electricity consumption is discounted to a greater extent than gas consumption (you could produce a similar outcome by removing policy levies from electricity bills). The discount itself can also be used flexibly, to provide a percentage discount or a fixed price depending on whether the policy is being used to address steady state price pressures, or absorb a price shock.

Our modelling is based on the following parameters (unless otherwise stated):

How the policy works

Introducing a universal block of discounted energy has the unique effect of providing support that is both targeted and universal. As the chart below shows, households on the lowest incomes receive the greatest level of savings, but all households will see their bills come down.

We can also see this trend when looking at particular household archetypes.

The Affordable Energy Guarantee provides a deeper level of support to households with disabled people – reflecting the fact that some disabled people have high energy needs (often for medical equipment or to heat their homes to a specific temperature to help manage health conditions). As the chart above shows, low-income households that include someone with a long-term physical or mental health condition receive the greatest level of savings (£151 annually).

We see a similar effect when looking at outcomes for single-parent households.

Recent research found that single parents were disproportionately likely to be behind on energy bills. As the chart above shows, the Affordable Energy Guarantee provides greater support to single-parent households than to single-person households without children.

These results reflect the ‘progressive majoritarian’ impacts of the policy which are driven by a number of key design choices.

Carve-out for recipients of means tested and disability benefits, and per child allowance

Households most at risk of fuel poverty include those with high energy needs and low incomes. Our policy is designed to give additional support to these households by applying the discounted unit rate to all consumption for those in receipt of means tested and disability benefits. It also introduces an additional 25% allowance for every child in the household to reflect the impact that household size has on energy consumption. These design features mean that households that are most in need are getting the deepest level of support.

This chart shows the percentage of high-energy-consuming households (energy consumption at or above the 67th percentile of total energy use) that are supported by the additional child allowance, or either of the carve-outs for means tested and disability benefits. Low-income households are significantly more likely to benefit from the additional support mechanisms than higher-income households.

Level of threshold

The progressivity of the policy depends in part on where the threshold for discounted consumption is set. This threshold determines how much consumption is priced at the lower rate, and therefore how strongly the tariff favours lower-usage (lower-income) households. Lowering the level of the threshold increases the progressivity of the policy.

This happens for two reasons. Firstly, lowering the threshold increases the unit rate discount – this means that households in receipt of means tested and disability benefits receive a higher level of discount on all of their energy consumption (and these households are more likely to be on lower incomes). Secondly, low-income households typically consume less energy and therefore do not use all discounted units when the threshold is set at a high level.

In the graph above, we have modelled the impact of the basic energy discount levels set at proportions of Ofgem’s median annual energy consumption (Ofgem, 2026), relative to predicted prices in July 2026 (Cornwall Insight, 2026). Setting the discount threshold at 50% of consumption maximises progressivity, while still delivering meaningful support to the median household. Setting the threshold at 50% Typical Domestic Consumption Values (TDCV) delivers an annual saving of £84 to the median household, while a threshold of 25% TDCVprovides an annual saving of £59 for the median household.

Funding the Affordable Energy Guarantee

For the purposes of our modelling in this paper, we have used energy prices set by the July-September 2026 price cap and assumed a policy cost of £3 billion — spread equally across electricity and gas bills.

However, as the chart below shows, it’s possible to increase or decrease the cost of the policy according to the amount of support required.

One of the main advantages of the Affordable Energy Guarantee is that the funding mechanism is uncoupled from the means of delivering the subsidy. As we have explored previously, this means that it can be funded in different ways at different times.

In the present climate with the threat of an imported price shock from the Middle East, our preferred approach would be that the Government funds this support in its entirety through tax receipts. Funding support through general taxation — as opposed to through borrowing or consumer bills — helps the Bank of England keep interest rates lower. The introduction of the subsidy partially offsets the one-off imported price shock, and therefore also avoids some of the possible secondary effects — as workers seek to build up wages — that the Bank might otherwise seek to reduce through higher interest rates. Funding through taxation is also preferable to funding through bills on distributional grounds.

However, at other times the affordable energy guarantee could be partially or wholly funded by industry levies, consumer bills or borrowing, depending on micro and macro-economic circumstances.

If the Affordable Energy Guarantee were funded out of taxation, there are ways to raise the required receipts while improving on the fairness and efficiency of the tax system. Currently, income from investment and the profits from selling capital assets receive more favourable tax treatment than earnings from employment. Bringing effective tax rates on capital gains more closely into line with income tax, including an increase to headline rates, re-introducing an investment allowance, removing the death uplift, and implementing an exit tax so that those emigrating from the UK do not avoid paying tax on their capital gains, could raise more than £13 billion per year by 2029/30.

While applying National Insurance Contributions to investment income (for example dividends, rents and savings), would likely raise in excess of £10 billion a year by 2029/30 see (Earwaker et al, 2025) for further details. Either of these efficiency improvements in the tax system would provide the Government with sufficient fiscal space to make the kind of intervention in the energy market we’ve identified.

Implementing the Affordable Energy Guarantee

Implementing the Affordable Energy Guarantee in its most robust form would require a sequence of reforms, from secondary legislation to energy code changes, to establish an enduring framework that meets both the needs of today’s energy sector and those of a net zero future.

Delivery could be coordinated through a Significant Code Review (SCR), a well-established, omnibus process for overseeing complex changes across the energy system. SCRs have been used to direct major reforms, such as the Targeted Charging Review, Market-wide Half-Hourly Settlement (MHHS) and Access and Forward-Looking Charges reforms, and could be used here to implement the discount by the end of this parliament.

This framework is needed to coordinate allocation mechanisms across meter types, in order to maintain standardised discount levels for households with traditional pre-payment or credit meters that don’t provide regular consumption data to suppliers, or price signals to consumers.

This can be achieved through careful policy design around estimated consumption and clear communication with customers, to help overcome data visibility limitations. Similarly, the framework would ensure the discount is applied fairly across different tariff types, as modelled in the table below.

While a significant code review would be needed to implement the most robust version of the Affordable Energy Guarantee, many of the technical requirements needed to implement the policy are already in place. Existing infrastructure would support allocation, with MHHS improving real-time consumption data, Typical Daily Consumption Values setting a precedent for block design, and 70% of GB households using smart meters. Once fully implemented, every household would receive the discount automatically each month, based on meter readings or estimated consumption. Households that qualify for additional support would do so using Department for Work and Pensions (DWP) benefits receipt data that is already used to determine eligibility for the warm home discount.

In future work, we will consider a number of outstanding implementation questions including how to adjust the basic threshold to match seasonal changes in energy consumption.

Conclusion

The question of energy affordability has never been more important. An Affordable Energy Guarantee addresses both the breadth and depth of the affordability crisis — providing bill savings to all households and the deepest support to those who need it most. It does so in a way that also creates a new piece of policy architecture — giving the Government the control it needs to manage future shocks and the transition to net zero.

Significant change to an already complex energy system is not easy, but maintaining the status quo guarantees continued hardship for millions of households. With clear ministerial direction and bold leadership, existing processes within the energy system could be used to transform the billing system.