A central weakness of the government's proposal to shift the Warm Home Discount (WHD) from standing charges to the per-unit rate is the assumption that household income broadly correlates with energy use. While average trends suggest lower-income households often use less energy, this hides a significant group of low-income, high-energy users who would be unfairly penalised by this change.
Additionally, lower energy use among many low-income households is often driven by affordability, not choice. Evidence shows that many households are unable to keep their homes warm, including a large number who do not receive means-tested benefits.
Shifting WHD costs to a unit-based charge would therefore fail to make the scheme more progressive, and risks worsening fuel poverty. We recommend that the cost of the WHD is instead removed from energy bills entirely and recovered through general taxation.
The proposal also risks undermining decarbonisation objectives. Moving the costs of the WHD into unit rates would increase the ratio between gas and electricity prices – known as the ‘spark gap’ – particularly if costs are split evenly between the two fuels. This would weaken the financial incentive to move away from gas heating, undermining the transition to clean heat.
Finally, our response highlights the difficulty of assessing this proposal in isolation. Changes to energy bill levies interact with one another, and considering them piecemeal makes it hard to understand their combined impact on households and the energy system. Instead, the government should set out proposed changes to levies together and consult on them as a package.
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