The UK government is facing calls to spend almost \u00a34bn to launch a \u201csocial tariff\u201d providing cheaper energy for poor households amid growing concerns over the Iran conflict.<\/p>\n
As households brace for an increase in living costs, the Resolution Foundation<\/a> said ministers should develop a system of discounted domestic energy bills in time for next winter to protect the most vulnerable households.<\/p>\n Urging the government to target support for those most in need, the thinktank warned that a blanket approach to protect all households \u2013 similar to Liz Truss\u2019s energy price guarantee after the 2022 Russian invasion of Ukraine \u2013 would be \u201cwasteful\u201d or risk leaving poor households behind.<\/p>\n In a report that comes as ministers face pressure to intervene on energy bills, the Resolution Foundation said a social tariff worth \u00a33.7bn that subsidises the gas and electricity bills of the poorest households could provide an average \u00a3310 for the poorest tenth of households, rising to \u00a3520 for a family with high energy needs.<\/p>\n It said such an approach would have the most impact while providing value for money amid concern that elevated levels of government borrowing and debt are limiting the chancellor Rachel Reeves\u2019s capacity to respond.<\/p>\n A social tariff would provide a 21% discount on electricity and gas prices to households with incomes before housing costs that are below \u00a338,000.<\/p>\n Keir Starmer\u2019s government has come under growing pressure from opposition MPs about the potential rise in living costs, as the Tories, Reform UK and the Liberal Democrats push for the chancellor to drop a planned rise in fuel duty from September. A 5p cut in the tax on petrol and diesel \u2013 first made after the Russian invasion of Ukraine \u2013 is scheduled to be phased out in that month.<\/p>\n Nigel Farage\u2019s Reform UK has also pledged to scrap VAT and remaining green levies on energy bills. VAT is set at 5% on household energy bills. At the autumn budget, Reeves cut green and social levies from bills, transferring funding to general taxation, to reduce household bills by \u00a3150.<\/p>\n However, the Resolution Foundation warned extending a cut in fuel duty or removing the remaining \u201cpolicy costs\u201d \u2013 government-mandated levies to fund environmental or social schemes \u2013 would come with a hefty price tag and help higher-income households most.<\/p>\n The analysis showed removing the remaining \u00a33.7bn of direct policy costs on domestic bills would give \u00a3150 to richer households, versus \u00a3120 for poorer households, given their higher energy usage.<\/p>\n Reeves has said the government was exploring options for targeted support, telling MPs last week<\/a> that Treasury officials were dusting down preparatory work undertaken during the Russia-Ukraine energy shock.<\/p>\n \u201cThe fact that that work took place then means that we are more advanced on this occasion,\u201d the chancellor told MPs on the Commons Treasury committee. \u201cWe are looking at all those things, but it is too early to give you different scenarios and different options for different scenarios.\u201d<\/p>\n