Why a social tariff would help solve fuel poverty – Inside track

The cost of living crisis has outpaced low incomes and social security, leaving many households unable to afford essentials and forced to make the bleak choice between heating and eating. Energy debt is the fastest growing debt reported to Citizens Advice since 2020, standing at over £1 billion. All while wealth inequality widens.

England uses a faulty measure of fuel poverty
Under England’s current definition of fuel poverty, known as the Low Income Low Energy Efficiency metric, the full scale of this problem isn’t recognised. It states fuel poverty can’t exist in a home with an energy efficiency rating of C or above, but home energy performance doesn’t measure energy affordability. According to this, 2.73 million households are in fuel poverty. But it’s at odds with definitions used by Scotland and Wales, which are based on the proportion of household income spent on energy. Using Scotland’s measure, where ten per cent of household income after housing costs is spent on energy, the number in England balloons to nine million households in 2024, showing the true scale of the problem.

Having a more energy efficient home does bring bills down. Properties with little insulation and inefficient gas boilers are hard to keep warm. But England’s fuel poverty definition ignores the fact that some can’t cut their energy use. The fuel poor include large families, disabled people and older households who can’t avoid using relatively more energy.

People renting also have little agency to improve their homes. The government is raising minimum energy efficiency standards for rented properties by April 2030. Upgrading a property from EPC E to C could save £450 on a household’s annual energy bill. But there’s a risk that, without stronger protections, landlords will pass the upgrade cost on in higher rents, making the cost of living crisis worse for tenants.

Addressing fuel poverty would also tick two of the government’s missions: to improve public health and living standards, by reducing the burden on the NHS caused by health problems associated with cold homes and lowering energy debt.

Failing to help more people is a political risk
Although the government promised to cut bills in its 2024 election manifesto, it still hasn’t outlined how. Failing to deliver would be politically risky, threatening Labour’s future electoral prospects and the climate agenda, which the government has championed as “the economic opportunity of the 21^st century”.

Yet we know fiscal circumstances are tight, not helped by the expensive and poorly targeted 2022-23 Energy Bills Support Scheme, with its flat rate £400 discount to all British households. Any new support should be better targeted at those who really need it.

This is where a social tariff comes in. It’s a way to assist those least able to pay. And it’s popular with the public. Three quarters (75 per cent) of those polled agree with discounting energy bills for people in the greatest need. In July 2025, the Living Standards Coalition, a group of over 100 Labour MPs, urged the Energy Secretary Ed Miliband to explore reforming energy bills to cut costs for the poorest households.

A social tariff is a better way to support struggling households
In new work, commissioned by OVO Energy, we’ve modelled how a social tariff, with discounted unit rates and standing charges, would work when combined with higher minimum energy efficiency standards for homes.

We analysed three scenarios: replacing existing energy bill support, like the warm home discount, at the same level of cost, a ‘broad and tiered’ scenario and a high impact tariff.

We show that, although a social tariff is more effective than existing schemes at the same level of cost, spending £0.6 billion more (under our broad and tiered scenario) could have a bigger effect, reducing fuel poverty by 19-26 per cent. Our highest impact scenario could lift half of those in the lowest two income groups out of fuel poverty, at a cost of £4.85 billion, just over twice the cost of existing schemes.

The big question is how could it be funded? There’s no perfect answer.

The cost of the Warm Home Discount is levied on all energy bills and will rise to £1 billion this winter. Trying to raise even more via this route would be unpopular. Rising policy levies have already led to a two per cent increase in the energy price cap this autumn, to howls of protest from the right wing press. For a government elected on a commitment to reduce bills, this would be a hard sell unless the cost of wholesale energy was falling.

Another form of existing support, Winter Fuel Payments, comes out of the public purse, costing £1.25 billion in 2025-26. Although the government is reluctant to raise taxes, when polled, 64 per cent of the public support a social tariff, even when it means higher taxes.

Now is a good time to make the change
While fuel poverty rises, extraordinary profits have been made by some in the energy sector, some of which have been recouped through windfall taxes on both fossil fuel and renewable energy generation. The time is right for a broader discussion around energy bills. This must include how to pay for policy and network costs in a fairer way; the gap between electricity and gas prices which discourages people from switching to more efficient electric heating systems; and the use and extent of windfall taxes, such as the Energy Profits Levy, where necessary.

As the government reviews its Fuel Poverty Strategy and prepares its Warm Homes Plan, now is a good time to consider a change in policy. A social tariff would support low income households with high energy costs, during the transition to warm, well insulated, low carbon homes.

The first of our conclusions is that you can’t manage what you can’t measure. England  should immediately adopt Scotland’s definition of fuel poverty based on income to see the true scale of the problem. A major finding was that a social tariff will be more effective than the flat rate rebates offered through the current schemes. Finally, any scheme should specifically target those on the lowest incomes and with unavoidable high energy needs.

A smarter approach is a social tariff that flexes with usage and volatile prices, combined with investment in retrofit and a rapid shift to renewable energy. Together, these measures could support people now, cut exposure to volatile fossil fuel markets and bring down bills for everyone long term. A social tariff is the most direct way to support households during this parliament while wider reforms take hold. Without it, millions will continue to be left behind.