The Resolution Foundation has called on Prime Minister Andy Burnham to implement a tiered system of cost of living payments, proposing £220, £175 and £85 support packages for households struggling with energy bills. The think tank's new report, titled Billing Me Softly, argues that the Government lacks a targeted mechanism to help those most in need, following the recent surge in wholesale gas prices to near record highs.
Report highlights gap in state's toolkit
The report notes that less than a month after Burnham took office, and despite an early decision to cut VAT on electricity, energy bills remain a pressing political issue due to escalating conflict in Iran. As of early August, wholesale gas prices have climbed back to levels not seen since the start of hostilities, exposing what the Foundation describes as a "gap in the state's toolkit" – beyond the benefit system, there is no way to target support for households facing high energy costs.
During the 2022 price spike, ministers resorted to universal support at a cost of £44 billion. The new Government is urged not to repeat this mistake. Instead, it should build a targeted scheme now, ready to apply discounts to gas and electricity unit prices if needed in early 2027.
Why universal support is inefficient
The Foundation argues that relying on universal support is flawed, as the richer half of the population would receive more than half of the benefit. However, targeting is challenging. Passporting support to means-tested benefit recipients, as done with the Warm Home Discount, only reaches about a quarter of British households and would miss most below-average-income households. Hardship is not confined to the poorest: in 2022-23, over 15 per cent of households in the second income quintile could not afford to keep their homes warm.
Proposed income-based threshold
To address this, the report recommends extending support to households that pass an income test based on the highest income of resident individuals. A threshold of £24,000 per year would reach around 40 per cent of households and cover 75 per cent of those in the poorest four income deciles.
A £2 billion scheme could provide an average of £175 per eligible household. Alternatively, it could be tiered – paying around £220 to those with incomes below £18,000, and £85 to those above – to favour the poorest. The Foundation suggests automatic enrolment via HMRC data as the long-term goal. For this winter, a self-declaration system verified by HMRC after the fact would be imperfect but deliverable.
Implications for Burnham's Government
The report comes as Burnham faces mounting pressure to address the cost of living crisis. Earlier proposals have included a council tax cut for 19 million households. The Foundation's recommendations offer a more targeted approach, aiming to balance fiscal responsibility with effective support for those most affected by rising energy prices.
By adopting such a scheme, the Government could avoid the pitfalls of universal support while ensuring help reaches a significant portion of the population. The tiered payment structure would particularly benefit the lowest-income households, potentially alleviating fuel poverty for millions.
As the situation in Iran continues to influence energy markets, the urgency for a pre-prepared response grows. The Resolution Foundation's report provides a blueprint that Burnham could implement swiftly, should energy prices escalate further.
