The Resolution Foundation calls for a means‑tested energy discount that would reach about 40% of households and save an average of £175 each, at an estimated cost of £2bn. Eligibility would be targeted at households where the top earner takes home under £24,000 and the scheme should be ready by January 2027. Recent government steps — removing VAT from energy bills and scrapping two levies — could cut bills by roughly £200 from October, but rising wholesale costs risk offsetting those savings.
Resolution Foundation Urges Fast, Targeted £175 Energy Discount For Struggling Households
The proposals would follow from prime minister Andy Burnham's move to cut an average £45 a year from energy bills by removing VAT costs (PA Wire)
The Resolution Foundation has urged ministers to introduce a targeted, means‑tested energy discount to protect households most at risk from rising winter energy prices. The think tank estimates the scheme would reach roughly 40% of households and deliver average savings of £175 per household at an estimated cost of £2 billion to the government.
Who Would Be Eligible?
The foundation recommends eligibility be based on household income, proposing the discount for homes where the highest earner takes home less than £24,000 a year. It says the scheme should be operational by January 2027 so it can blunt the impact of any winter price spikes.
Government Measures And Market Context
These proposals come alongside recent government measures intended to lower bills. The government has moved to remove the VAT element from domestic energy bills, which is estimated to save households about £45 a year on average. Separately, Sir Keir Starmer's administration confirmed scrapping two energy‑efficiency levies, a change expected to cut bills by roughly £150 on average from April 2026. Taken together, those steps are projected to reduce average household bills by around £200 from October.
Ofgem's energy price cap rose by £221 a year in July to £1,862 – the highest level in two years
However, the Resolution Foundation warns that rising wholesale costs linked to the US–Iran conflict could erase those gains. Ofgem raised the energy price cap by £221 in July to £1,862 — the highest level in two years — and will publish the October–December cap in late August. Analysts caution a further increase over the winter months is possible.
Why Targeted Support?
During the 2022 crisis the government spent around £44 billion on universal support that provided the same payments to all households regardless of income. The Resolution Foundation's analysis found that, while that universal scheme was in place, households in the poorest areas reduced their energy use by about 15% more than those in wealthier areas — a sign that poorer families still cut back on heating and bore a heavier burden.
“The last energy crisis pushed families in the poorest places to cut their heating by more than those in the richest, with most still not warming their homes as much as they used to — and a fresh price spike this winter risks driving them lower still,” said Jonathan Marshall, principal economist at the Resolution Foundation. He added that a targeted discount could save eligible households around £175 a year and reach over four‑fifths of the poorest families, while extending support beyond those captured by current benefit‑linked schemes.
The foundation notes the proposed income test differs from the Warm Home Discount, which is tied to eligibility for specific benefits rather than a straight income threshold. That approach means many who would likely qualify do not currently receive help because they do not claim the underlying benefits. A Department for Energy Security and Net Zero spokesperson said: “The energy secretary's priority is bringing bills down for good. We will tackle the cost of living to make life's essentials affordable again and bring back hope.”
Help us improve.
