Andy Burnham mulls energy bill reforms to save households £130 a year
Incoming Prime Minister Andy Burnham is considering a fundamental overhaul of the UK energy market, including removing policy levies to cut household bills.
Incoming Labour leader Andy Burnham is considering a fundamental overhaul of the UK energy market, aiming to reduce household bills by £130 a year. As he prepares to assume the role of Prime Minister, Burnham has identified the cost of "essentials" as a primary target, with a package of reforms expected to be among his first announcements from Downing Street.
The proposed changes, which rely on analysis from the thinktank Nesta, focus on rebalancing how energy is charged. Currently, legacy policy costs and renewable energy subsidies are heavily loaded onto electricity bills, which supporters argue artificially inflates the cost of clean heating technologies such as heat pumps. By shifting these levies into general taxation, the government aims to make electricity cheaper relative to gas, incentivizing households to switch away from fossil fuel boilers.
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The reform package under consideration includes three core components: removing specific policy levies from bills, restructuring the gas standing charge, and clearing a backlog of consumer electricity debt. Nesta estimates the latter measure — a one-off £2.7bn bailout — would provide debt relief to about 2 million households and reduce the £29 a year that all bill-payers currently contribute to cover the cost of unpaid debt.
Market and Political Pressures
The proposals come at a period of intense pressure. As of 1 July 2026, the energy price cap rose 13% to the equivalent of £1,862 a year for the average household. While the reforms are designed to provide immediate relief, the funding remains a point of contention. The total cost to the taxpayer for these measures is projected at £3.2bn a year, leading to speculation that the new Chancellor will need to implement tax rises in the autumn budget to remain within the government's fiscal rules.
External voices have proposed more aggressive funding models. Paul Nowak, General Secretary of the Trades Union Congress, has publicly urged Burnham to levy an additional windfall tax on major London banks to fund the cuts. Nowak suggested that increasing the bank surcharge, potentially up to 35%, could raise significant revenue.
The debate extends to the technical structure of energy tariffs. While some thinktanks have proposed a "rising block tariff", where households receive a discounted block of energy before higher rates apply, charities such as Citizens Advice have expressed concerns. They warn that such systems can disadvantage larger families or households that require more energy due to poorly insulated housing or medical needs.
Broader Energy Strategy
Beyond immediate bill relief, industry leaders are pressing for a long-term transition. A report from energy firm SSE suggests that shifting to electricity-based heating and transport, such as heat pumps and electric vehicles, could yield larger savings in the long run. SSE estimates that such a shift could cut the average household bill by around £500 a year by 2040.
| Proposal | Estimated Impact | Context/Source |
|---|---|---|
| Removal of policy levies/VAT cuts | £130/year savings | Nesta/Burnham team |
| Clearing electricity debt backlog | £29/year savings per household | Nesta |
| Switching to EVs/Heat pumps | Up to £500/year savings by 2040 | SSE analysis |
What to Watch Next
- Monday: Expected announcement of the new Prime Minister’s cabinet and ministerial team, which will clarify the direction of the Treasury and the Department for Energy Security and Net Zero.
- Autumn Budget: The venue for the final decision on whether to fund energy reforms through general taxation or specific wealth-based levies.
- Winter: Market observers will be monitoring energy price cap adjustments as potential conflicts in the Middle East continue to impact global oil and gas prices.
Burnham has insisted that no final decisions regarding his top team or the specific funding mechanisms for these reforms have been made. As he prepares to move into Downing Street, he faces the dual challenge of fulfilling promises to reduce the cost of living while navigating warnings from market analysts that unfunded spending could pressure mortgage rates and overall economic stability.
