• As bills rise under new price cap, new research shows that moving levies into general taxation would be an immediate way to tackle the cost of living for many, with average savings of £120 

• Vulnerable households would benefit the most: currently, some low-income households spend proportionally three times more of their net income on levies placed on bills than wealthier households 

• Moving levies into general taxation could cut bills by up to £280 annually for households with heat pump  

Tuesday 30 June (London): The energy price cap rise that comes into effect tomorrow could be mitigated by moving social and environmental levies off electricity bills and into general taxation, cutting electricity bills by 9%, a new report finds.    

In the Autumn Budget last year, some levies were moved from electricity bills into general taxation, cutting household bills by up to £150. 

The MCS Foundation, which published the research, says that although the Government’s action on levies so far has helped to cut the cost of electricity, the levies system remains unfair. 

Social and environmental levies currently add 9% to a household electricity bill. Low-income households are disproportionately impacted by these levies, which are applied to bills at a flat rate regardless of income. As a result, some low-income households spend more than three times as much on levies compared to wealthier households, as a proportion of net income, and spend more on levies than on fresh vegetables. 

Moving levies into general taxation would deliver immediate savings, with the average household seeing their energy bills reduced by £120 a year. Households reliant on electric heating – who are more than twice as likely to be in fuel poverty – could save between £140-£190 a year. Households with a heat pump could save as much as £280 a year.  

Dr Garry Felgate, CEO of The MCS Foundation, said, “Costs are rising for millions of households – but the Government can take action immediately by moving levies off electricity bills into general taxation.  

“These levies fund vital renewable energy infrastructure and programmes to tackle fuel poverty, but the way they are collected is fundamentally unfair. The current levy structure penalises both low-income households and those seeking to switch away from fossil fuels and install cleaner heating such as heat pumps. 

“Levy reform would deliver savings for millions of households, would benefit the most vulnerable, and would make clean energy more affordable. By incentivising the transition to heat pumps and other renewable heating systems, it would help ensure that British households are protected devastating fossil fuel price shocks.”  

Chris Galpin, Senior Advisor at E3G, said, “If government is serious about tackling the cost-of-living crisis, removing these unfair levies needs to be the first step. It’s absurd that the UK still taxes homegrown renewable electricity more than imported fossil fuels.”  

Sue Davies, Which? Head of Consumer Protection Policy, said: “We strongly support the call from The MCS Foundation to remove all environmental and social levies from electricity bills and fund them instead through general taxation, to better support households through the cost of living crisis. 

“Removing these levies would offer support to all, while delivering the greatest benefit to electrically-heated households, who are twice as likely to experience fuel poverty. 

“It would also support the transition to more sustainable technologies, such as heat pumps and electric vehicles, by reducing electricity costs.” 

Notes to editors

• The report uses the NEA definition fuel poverty, by which a household is considered fuel poor if it spends 10% or more of its income on energy costs in order to maintain a satisfactory heating regime.
• Households that rely on electric heating such as panel heaters or electric boilers are more than twice as likely to be in fuel poverty than those who use gas central heating. See https://www.e3g.org/news/the-uk-needs-more-affordable-electric-heating-tariffs/
• Levies currently make up around 9% of an electricity bill. In contrast, levies on gas make up just 3% of bills.
• In the Autumn Budget 2025, the Government announced they would scrap the Energy Company Obligation (ECO), which funded renewable energy installations and other energy efficiency measures in low-income households. The MCS Foundation believes it was a mistake to scrap ECO rather than move the cost of it into general taxation: https://mcsfoundation.org.uk/news/the-mcs-foundation-responds-to-budget/
• 75% of the cost of the Renewables Obligation will be funded by the Treasury rather than levies on household bills until April 2029. However the Office for Budget Responsibility forecasts that levies on electricity bills will rise by a third by 2031.  Without further reform, the benefits delivered by the measures announced in the 2025 Autumn Budget are therefore unlikely to be sustained.
• The report shows that increasing adoption of renewable energy in the UK has helped limit electricity bill rises compared to gas. However, further renewable energy development will take time to have an effect, meaning levy reform is one of the most immediate actions the Government can take to cut bills.
• Currently, levies are placed on electricity at three times the rate as those on gas. This drives up the cost of running fossil fuel-free heating systems such as heat pumps and weakens the incentive to switch from a gas boiler to a heat pump.