As part of the sustainable future mission, we want low-carbon electrical heating to be an affordable option for all households. By rebalancing levies, the government can help make electricity cheaper, make it easier for households to switch to green heating and ultimately lower their bills. This project will provide a better understanding of the tradeoffs of different options and aim to find a consensus on an equitable solution.

To reach the UK’s climate goals, 1 in 10 homes will need to switch to low-carbon heating over the course of this parliament. Transitioning away from gas is also the only sustainable way to reduce energy bills. Annual gas bills this winter will be £400 higher than they were in early 2021, which has left many households struggling to heat their homes. High and volatile gas prices are the main cause of rising energy bills, so the best solution is to help households switch to cleaner, more efficient heating.

At present, switching to low-carbon heating technologies like heat pumps doesn’t save households enough money compared to gas heating because electricity is so expensive. The UK has the highest ratio of electricity-to-gas prices in Europe. As of autumn 2024, a unit of electricity is 3.9 times more expensive than a unit of gas. 

The government has the power to change this by rebalancing policy levies. Levies are currently placed disproportionately on electricity compared to gas bills,effectively acting as a reverse carbon tax. If levies were moved to gas bills, a typical gas-using household could save around £500 per year by switching to a heat pump.

Changes to electricity and gas prices would impact household bills differently depending on the type of heating they use and their home’s energy efficiency. As a result, any redesign will need to carefully consider the potential impacts on vulnerable low-income households.

As part of Nesta’s policy work, we are exploring how different methods of collecting policy costs affect how these costs are shared among households. Using Ofgem’s consumer archetypes we model the impacts of rebalancing scenarios on energy bills for all kinds of households. Options include moving levies between electricity and gas bills, shifting them to general taxation, expanding existing targeted energy support for fuel-poor households, or combining these approaches.

The project also quantifies how cheaper electricity could support households in switching to low-carbon heating, while exploring options to protect vulnerable groups who may need more time to adopt new heating solutions.

We plan to explore the wider future of domestic electricity and gas bills and the effects of long-term price changes on how costs are distributed. One of our goals is to sketch out ways to ensure an equitable transition from gas to electricity.

We are engaging with stakeholders in the space and hope to convene policymakers, researchers, campaigners and energy companies to discuss the best way forward to rebalance levies.