Affordable Energy Guarantee would offer all households protection from future shocks

With the announcement of the latest energy price cap imminent, the Affordable Energy Guarantee (AEG) represents structural reform to the UK's disproportionately high energy prices, with lower-income households set to make average annual savings on their bill equivalent to around a month's worth of current energy costs.

• Households in the lowest third of incomes would save on average over £200 on their annual energy bill, based on predictions for the new energy price cap from Cornwall Insight.
• Single parents and couples with children in the lowest third of incomes would save over £250 a year
• Model follows approaches used in Japan, China and Germany that have cut energy prices and made consumers more resilient to price shocks

The policy would offer a unit rate discount on energy beneath a threshold of 50% of typical consumption, based on Ofgem domestic consumption values.

Any energy that is consumed above that threshold would be charged at the current market rate, and households with additional energy needs would receive a variety of ‘top-ups’.

• Households with children would receive additional equal increments for every child
• Households in receipt of means tested or disability benefits would receive the discounted unit rate on all their energy consumption

To produce the savings outlined above, the policy would cost £4.5bn. The policy is flexible and could be run at a higher cost to give larger savings to consumers. Also, as the policy can be capped and targeted it offers a more cost-effective approach to delivering support than the Energy Price Guarantee (EPG) introduced by the previous Government as a response to the last energy price crisis that began in 2021.

The AEG also provides the same level of cost savings for those on the lowest third of incomes as an EPG-style intervention (that fixes prices at April-June levels) for £0.5bn less.

Our policy offers protection against future price shocks caused by global events, whilst helping to shield consumers in the current moment against the ongoing conflict in Iran.

In the short term, the policy could be funded in part by a windfall tax on energy company profits, with a view in the longer term for this to come from general taxation, or the additional funding raised by reforming capital gains tax to bring it in line with income tax.

Notes to Editors

1. At the Joseph Rowntree Foundation, we work to speed up and support the transition to a future free from poverty, in which people and planet can flourish.
2. Contact us at pressoffice@jrf.org.uk or call 01904 615 958
3. Follow us on X or LinkedIn
4. The figures for the savings for households based on the current price cap come from Cornwall Insight projections. We'll be updating these figures with the exact Ofgem figures on Wednesday.
5. The updated edition will also share polling data conducted by More in Common that shows public appetite for action on energy bills, as well as how our policy performed when compared to other options available to government.