Briefing paper
Rising Block Tariffs: A Progressive Social Tariff or Heavily Damaging to Vulnerable Consumers?
04 March 2026
This blog was originally published by Strathclyde’s Centre for Energy Policy.
Last week’s Budget includes welcome measures to ease pressure on household and business energy bills. Extending the electricity VAT cut, introducing a £100 household energy payment, moving gas standing charges to a unit rate and reducing electricity costs for eligible businesses could provide immediate relief. The Warm Homes Loan Scheme also offers households a route to investing in energy efficiency and low-carbon technologies.
However, lasting improvements in affordability require more than temporary support. They depend on how energy system costs are funded, how assistance reaches those most in need, and whether investment in more efficient homes and well-designed tariffs supports a fair transition to net zero.
Research from the University of Strathclyde’s Centre for Energy Policy (CEP), the Energy Demand Research Centre (EDRC) and the UK Energy Research Centre (UKERC), highlights the importance of addressing these issues together. The Budget takes some welcome steps, but further reform is needed to tackle the underlying causes of high energy costs and fuel poverty while supporting wider economic prosperity.
Extending the electricity VAT cut and moving gas standing charges to a unit rate recognise that the different components of the energy bill matter as much as the headline price. This shows a recognition that how policy and investment costs are recovered in our energy bills is important. CEP research has consistently highlighted the negative distributional and economic consequences of funding net-zero policies through household and business energy bills.
CEP research ‘Paying for net zero: can we find a way that is more equitable and less costly to the economy than placing the burden on electricity bills?‘ examines the economic and distributional implications of funding the net-zero transition. It shows that recovering policy costs through electricity bills can disproportionately affect lower-income households and increase costs across the wider economy. Funding appropriate costs through taxation can offer a fairer and, in some circumstances, more economically efficient alternative. While moving the gas standing charge to a unit rate does not benefit from the full distributional benefits highlighted in our research, it can make bills fairer, particularly for lower energy consumers.
Keeping electricity affordable also matters for decarbonisation, helping households adopt technologies such as heat pumps and businesses manage operating costs. Extending the VAT cut on electricity bills is therefore a positive step, but it remains temporary. As the Government develops further electricity bill reforms, it should establish a longer-term approach to funding energy system and transition costs, moving appropriate policy costs away from bills and towards taxation.
The £100 household energy payment, intended to reach 20 million households in Council Tax bands A to D this winter, could help households manage immediate financial pressures alongside existing support, including the Warm Home Discount.
Timely assistance can prevent households from accumulating energy debt, cutting back on essential energy use or going without adequate heating. These outcomes can harm health and wellbeing and make financial recovery harder.
However, Council Tax bands do not necessarily reflect household income or financial security. Meanwhile, household size, property condition, health requirements and heating systems all affect essential energy needs. A flat-rate payment may provide useful relief but may not adequately reflect these differences.
The geographical distribution of support also matters. The announced payment targets English households, leaving support in Scotland, Wales and Northern Ireland up to devolved governments. Differences in climate and heating needs should inform the level and distribution of assistance.
The Government and devolved administrations should assess who benefits from their support schemes, who risks missing out, and whether assistance is sufficient for households facing the greatest pressures. Support should reflect financial circumstances and essential energy needs, not simply property characteristics.
Financial assistance can help households through a difficult winter, but lasting improvements require homes that are affordable to heat. Energy efficiency improvements can reduce energy demand and bills, protect households against future price rises and support the decarbonisation of the housing stock. They can also deliver wider economic benefits through investment, employment and activity across the supply chain.
This is particularly important in the context of the Budget’s decision to reduce capital grant funding for the Warm Homes Plan by £1 billion. While the Government has confirmed that the majority of funding for low-income households and social housing is protected, reducing planned investment raises questions about the scale and pace of improvements that can be delivered across the housing stock.
CEP research ‘The economy-wide impacts of different approaches to addressing fuel poverty: the importance of where, when and how public funds are spent’, examines how public spending affects both recipient households and the wider economy. It highlights that outcomes depend not only on how much is spent, but also on how and where funding is used. Well-designed energy efficiency investment can deliver lasting benefits for households while supporting economic activity and employment.
The Budget’s Warm Homes Loan Scheme could help eligible households cover upfront costs for improvements such as insulation, heat pumps and solar panels. However, loans will not suit everyone. Households experiencing fuel poverty may have little capacity to take on additional repayments, while renters generally cannot make retrofit decisions independently of their landlords.
The scheme should therefore complement grant-funded support for households unable to borrow, alongside appropriate building standards and measures to improve the energy performance of rented properties. A long-term strategy must ensure that those most at risk of fuel poverty can access improvements regardless of income, tenure or ability to borrow.
Moving gas standing charges into the unit rate could benefit households that use relatively little gas and potentially allow the rest of the households to better distribute, if possible, their gas budget to the months where higher use is needed. The Government estimates that around 60% of households will save an average of £45 a year. However, low consumption does not necessarily mean low energy need. Households with health conditions, larger families or poorly insulated homes may need substantial amounts of energy and have limited scope to reduce consumption.
Removing fixed charges also changes how energy supply costs are distributed. If these costs are recovered through unit prices instead, households with higher consumption could face higher bills.
CEP research on rising block tariffs examines whether they can provide a progressive social tariff or risk harming vulnerable consumers. It highlights why consumption alone is not a reliable indicator of a household’s ability to pay or its essential energy needs. Related CEP modelling of tariffs without standing charges will further examine how these changes affect different household groups.
Our latest policy brief, ‘Rising block tariffs: aligning affordability with the low-carbon heat transition’, considers how tariffs with increasing unit prices across successive consumption blocks could support the transition to low-carbon heating. Such tariffs can make an initial amount of energy more affordable while encouraging lower consumption. However, their effectiveness depends on design and on whether households with high essential energy needs are adequately protected.
As electrification increases, tariff design will become even more important. There is no single structure that automatically delivers affordability, fairness and decarbonisation. Reforms must account for differences in income, housing conditions and energy needs, with targeted protection for fuel-poor households and investment in energy efficiency.
The Budget also provides a 25% reduction in electricity bills for 10,000 eligible businesses, starting in the next financial year, with payments backdated to cover this year’s energy costs.
Lower electricity costs could help businesses reduce operating expenses and improve competitiveness. If savings are passed through to prices, households could also benefit. However, the impact will depend on which firms qualify and whether lower costs translate into lower or more stable prices.
The measure supports the wider ambition to reduce industrial electricity costs and encourage electrification. Yet temporary assistance cannot resolve the underlying cost pressures facing businesses. Lasting benefits will require electricity pricing and cost-recovery reforms that support affordable, predictable energy costs alongside industrial decarbonisation.
The Budget contains welcome measures to ease immediate pressure on household and business energy bills. Their long-term success will depend on whether they form part of a coherent strategy built around three priorities.
First, fund energy system and net-zero costs more fairly, moving appropriate policy costs away from electricity bills and towards taxation to support household affordability and wider economic activity.
Second, target financial assistance more effectively, taking account of household circumstances, essential energy needs and differences across the UK.
Third, combine sustained investment in energy efficiency with carefully designed tariffs to reduce the energy needed to keep homes warm while protecting households that cannot easily reduce consumption.
These priorities are interconnected. Fairer cost recovery can improve affordability and support electrification; better homes can reduce energy demand; and well-designed tariffs can help ensure that households with high essential energy needs are not disadvantaged by the transition.
The challenge for policymakers is to move beyond temporary relief to a system where households can afford to heat their homes adequately, public money delivers lasting benefits, and the transition to net zero is fair and economically sustainable.
The Budget offers welcome steps. The next task is to build on them through an evidence-led programme of lasting reform that puts household affordability at the heart of energy policy and ensures the transition to net zero supports a fairer and more prosperous economy.