Yesterday, Daisy Cooper announced measures to cut energy bills. Under Lib Dem plans everyone would get £100 off their bills with more targetted support for, for example, households with disabled people or children or low incomes. Watch her speech here.
She said:
Energy is not a luxury. It’s a basic human need. It’s essential. Every single household in Britain should be able to afford their basic everyday energy needs regardless of what happens in global energy markets, and regardless of who happens to be sitting in Number 10.
For too long, governments have responded to every energy crisis with short-term schemes and sticking plasters, while big corporations have made a fast buck.
That is why we are going after the big energy network operators who are gaming the system, to fund our new Essential Energy Guarantee. It is an absolute scandal that a weak regulator has allowed these monopolies to make billions in windfall profits at the expense of bill payers.
Labour’s leadership contenders have a choice: turn a blind eye to the windfall profits of energy network operators and big banks, or step in to guarantee basic dignity for families. Commit to introducing our Essential Energy Guarantee within your first 100 days.
Our Energy Spokesperson, Pippa Heylings MP, added:
This opportunity is an open goal for giving families the energy bills relief they have been hoping to see for far too long. The unfair profits accumulated by energy network companies must be reigned in and used for the public good.
This is the newest part of a package of common sense policies put forward by the Liberal Democrats: solar on every new home, a new home insulation upgrade programme, breaking the link between electricity and gas prices, and removing the renewables obligation levy.
Time after time we have put no-brainer recommendations to this government but the pace has remained painfully slow. This time they must not sit on the idea, and instead save families struggling with the cost of living now.
The small print
The Essential Energy Guarantee was initially proposed by the Joseph Rowntree Foundation. Details about their proposal can be found here.
The policy introduces a discount on a set portion of energy, equal to 50% of what Ofgem defines as medium annual usage (“Typical Domestic Consumption Value” – TDCV). Medium annual usage according to Ofgem is 2,700 kWh of electricity and 11,500 kWh of gas. The 50% “essential” block of energy would be 1,350 kWh of electricity and 5,750 kWh of gas on an annual basis.
Families with children would receive an extra portion of discounted energy for each child. Disabled people and the poorest in society, in receipt of means-tested benefits, would receive a discount on all of their energy usage.
The total cost of the policy is £3 billion a year. For its first two years, the policy would be funded in the following way:
- £2.5 billion a year would be raised by clawing back the unexpected £5bn windfall made by energy network operator companies under Ofgem’s RIIO-2 price control framework.
- Another £500 million a year would be raised through the windfall tax on the big banks proposed by the Liberal Democrats in September 2025.
Network operator clawback mechanism:
Energy network firms are the private companies who own the electricity and gas network (pipes, cables, pylons etc.) Because they are monopoly companies with no competitors, their profits are regulated by Ofgem.
A flaw in Ofgem’s “RIIO-2” price control framework has rewarded network operator companies with around £5bn in undeserved profits, which are over and above what Ofgem believes is reasonable. Ofgem mistakenly assumed that network companies’ borrowing costs would rise with inflation, but the companies had already locked in their borrowing at historically low fixed interest rates. When inflation spiked, this allowed network companies to pocket the difference.
The Institute for Public Policy Research recently recommended a mechanism to claw back this £5bn windfall. More information can be found on page 5 of their “Flex Factor” report. The Energy Security and Net Zero Select Committee also called for a clawback mechanism in October 2025.
What do we think of these plans?
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15 Comments
This strikes me as a proposal for a very complex system that needs to be thoroughly thought out before it gets anywhere near becoming party policy. As a party we are aware of the absolute disaster our country’s current benefits system has become, where so many sticking plasters have been added by well-meaning (and not-so-well-meaning) governments in response to each new problem they face.
This proposal will add yet more layers to this disaster.
£100 for everyone – every person, every family, every household, every energy bill purchaser? What about shared occupancy, people off grid, people using heating oil?
Extra for children, why not put it on Child benefit?
Extra for the disabled, including the disabled rich?
Extra for all usage by means tested benefit recipients – How to collect the data and work out the payment due?
Another new computer system (and enhancements and interfaces to lots of others) – At what cost? How long to develop, set up staff to run it, verify data, investigate fraud?
We know about the poverty trap for people just getting a bit too much to qualify for Universal Credit, now we propose to make the cliff edge to fall off even bigger.
Another new bureaucracy establishing jobs that add nothing to our country’s ability to pay its way.
And all at a time the day after it was announced that over the last 25 years the UK debt has tripled to 95.5% of GDP, more than any other state except Botswana.
Are we really sure?
I totally agree with David. This is another of those “Something must be done” policies. If you want to help the poor pay their bills then give them more money through the current mechanisms it will be more efficient and less intrusive.
There is no such thing as “basic everyday energy needs”. It is possible to make a home carbon neutral. This scheme would target one specific group in a negative way: those that have succeeded in reducing their energy bills below whatever arbitrary value we are assuming.
I cannot believe this is a serious policy proposal. This is just amateur scribblings on the back of a fag packet.
“As a party we are aware of the absolute disaster our country’s current benefits system has become, where so many sticking plasters have been added by well-meaning (and not-so-well-meaning) governments in response to each new problem they face. ”
Indeed – isn’t it time a small separate task force was set up to design a new benefits system from scratch, removing sticking plasters (which may be in conflict with each other)? Yes I know there would be a cost to doing it but if this isn’t done the sytem will continue to get worse.
“Extra for the disabled, including the disabled rich?”
Mightn’t it cost less overall to cater for all disabled people in the same way than to treat some differently?
https://www.geeksforgeeks.org/software-engineering/kiss-principle-in-software-development/
Disappointed. The most obvious means of reducing energy bills is to remove VAT. Relatively straightforward to do and does not adversely impact on the attractiveness of working for a living compared to living on benefits.
If we don’t like wealthier people getting any help with their energy bills, we could raise existing taxes on wealthier people to compensate.
Agree with David Evans. A bit of this and a bit of that doesn’t add up to much and it certainly isn’t going to (metaphorically) set the world on fire.
The party is going to stagnate without fresh leadership and clear radical policies. This, I’m afraid, ain’t it. There’s a limit on how many times a Leader can fall in the water to provoke interest without becoming a one trick pony.
@Kira CollinsThat assumes we want to help people more with their energy bills than with all the other bills they may be struggling with. There is no reason why we should encourage people to spend on energy rather than other things. We should be encouraging them to use less energy. To do that, you should put standard rate VAT on energy and use the money to raise pensions, benefits and tax allowances.
so we get a permanant increase in costs for these subsidies based on ( alleged ) windfall profits. Its another big increase in spending -how is it to be paid for ?
By the same logic why not tax supermarkets to subsiside food?
The price mechanism is essentially a system of rationing. In wartime it is usually recognised that it isn’t the most equitable system! So some better system has to be devised to ensure everyone is adequately fed, clothed and housed etc.
The point is that reducing taxes and even applying subsidies doesn’t solve the overall problem. If there isn’t enough supply then reducing taxes doesn’t immediately increase it. It may increase it in the longer term but who knows how long that might be?
At the same time if taxes are lowered on some products there probably will be a need to increase other taxes. Energy will probably end up being no more affordable on average in the end.
Politicians have to be seen to be doing something for electoral reasons, of course, but they aren’t really doing much to solve the problem with suggestions of overall tax cuts.
This is such a disappointing announcement.
We must push to have the present system for pricing all electricity based on the cost of the most expensive, usually gas-fired power stations, to be replaced. Consumers bills should be based on actual generation costs. It’s not just poorer people who are being punished by excessive electricity prices, the UK is deterring businesses from investing here. As solar and wind are by far the cheapest form of generation we should be doing everything possible to expand these and take away the subsidies, tax breaks etc given to the fossil fuel industry. Cheap electricity will ease the migration away from gas heating for everyone.
We also need to address the poor energy efficiency of our buildings. The present Energy Performance Certificate costs owners around £150 million a year and is an unreliable box-ticking exercise. It actually punishes builders who exceed building regulations standards on insulation within walls etc by downgrading their rating – the EPC rating ignores anything not visible to the inspector.
Another group for whom this does not work are those in all-electric homes including many poor tenants in blocks of flats. Their overall bills may well be high because electric heating is expensive (except heat pumps which very few landlords install). Since they don’t have gas, they would only get one allowance compared to the two that others get.
“Their overall bills may well be high because electric heating is expensive”
I live in an (almost) all-electric home. I do have a wood burner stove but I’ve got a lot of old trees which provide a source of wood. This is a rural dwelling.
I have electric storage heaters which come on using a cheap rate of electricity at specified times of the day and night. Clean. No water pipes needed to carry heat around the house.
In my view the need for good insulation isn’t focussed on nearly enough. I’m not sure that modern building regulations focus on this much if at all.
I wouldn’t want gas even if it was available. Heat pumps seem to need a lot of infrastructure which must be expensive.
@Peter Martin
“ We should be encouraging them to use less energy. To do that, you should put standard rate VAT on energy and use the money to raise pensions, benefits and tax allowances.”
Completely disagree. Hammering another 15% of VAT on top of current energy costs will really cause hardship for many families. Of course, you will protect those on benefits while leaving those on low wages to struggle.
If you are really trying to encourage more people to question whether they would be better off living on benefits than working, you certainly seem to have identified a winner!
@Kira Collins You seem to have missed the bit about raising tax allowances. That primarily helps those on low wages.
@ Kira,
The words you quoted were from Peter Davies’. Not me. I wouldn’t agree with raising VAT on energy to 15% right now. I’d leave it as is.
The point is that reducing taxes on anything doesn’t end up making them cheaper if the issue is lack of supply. An example would be the way agricultural land has shot up in value enormously since Mrs Thatcher cut inheritance taxes drastically. Another is the price of housing. It would be a lot less expensive if a tax was applied to the equity of our ownership.
This would benefit young people because they wouldn’t have to pay such high prices and they wouldn’t be paying much tax because they wouldn’t have much equity if they were buying on a mortgage. It would mean older people paying more in property tax, though, which would free up everyone to pay less in taxes elsewhere. Another plus for younger people.
It would take a brave government to make the change though! I’m not expecting this to actually happen.