Millions of households across Britain are set to receive a significant reduction in their energy costs, with Chancellor Rachel Reeves announcing a new annual discount of £150. The cut, which will apply from April, is aimed at providing relief to families grappling with the ongoing cost of living pressures.
How the £150 Energy Bill Discount Will Work
The saving will be delivered to customers of major suppliers like British Gas, EDF, E.ON, Ovo, and Octopus who are on typical usage tariffs. The reduction is expected to equate to a rough 3.3p cut in the electricity unit rate and a 0.3p reduction in the gas unit rate (pre-VAT).
Chancellor Reeves confirmed the measure in the Commons, stating it fulfils a key government promise. "For every family we are keeping our promise to get energy bills down and cut the cost of living - with £150 cut from the average household energy bill from April," she declared.
Funding the Cut: Scrapping the ECO Scheme
The discount will be funded by two primary methods. The first is the scrapping of the previous government's Energy Company Obligation (ECO) scheme. Reeves criticised the scheme, stating it cost bill-payers £1.7 billion a year and, for 97% of families in fuel poverty, it had cost them more than it saved.
"It is a failed scheme," the Chancellor told MPs. "So, I am scrapping that scheme along with taking other legacy costs off bills."
The second method involves shifting 75% of the cost of energy levies off household bills and into general taxation, a move advocated by money saving expert Martin Lewis as more progressive. Some funds from the scrapped ECO scheme will be redirected into the Warm Home scheme, though exact details are pending.
What It Means for Fixed Tariffs and Future Charges
There has been clarification on whether the reduction will apply to customers on fixed-rate deals. According to Martin Lewis, who discussed the plans with a senior government member, the government has "clear expectations" that suppliers will pass the cut on in full, including to those on fixed tariffs, mirroring the precedent set by the Energy Price Guarantee.
Lewis also noted that while the focus is currently on unit rates, there is hope that future action may address high standing charges, though this has not happened with this announcement.
The news comes as households face a rise in the energy price cap to £1,758 in January, making the planned April reduction a critical intervention for family budgets. The Chancellor positioned the move as a clear political choice, contrasting it with the approach of the previous Conservative administration.
