SPOTLIGHT 1 Billing me softly How to design targeted energy discounts 10 August 2026 Mike Brewer, Alex Clegg and Jonathan Marshall Less than a month after Britain's new Prime Minister took office, and despite a day one decision to cut VAT from electricity bills, yet another escalation in the war in Iran means that energy bills have not left the political agenda. As of early August, wholesale gas prices have surged back to around the highest levels since fighting began. But the past four years have exposed a gap in the state's toolkit: beyond the benefit system, the Government has no way of targeting support for households struggling with energy bills. When prices spiked in 2022, ministers fell back on universal support, at a cost of £44 billion. The new Government should not risk repeating previous mistakes: it should build a targeted scheme now, ready to apply a discount to gas and electricity unit prices if needed in early 2027. It does not make sense to rely on further universal support, where the richer half of the population get more than half the benefit. But targeting is harder than it sounds. Passporting support to means-tested benefit recipients, as the Warm Home Discount does, reaches only around a quarter of British households, and would miss most below-average-income households. Nor is hardship confined to the very poorest: in 2022-23, more than 15 per cent of households in the second income quintile could not afford to keep their home warm. To strike a balance between effective targeting and deliverability, we propose extending support to households passing an income test based on the highest income of the resident individuals. A threshold of £24,000 per year would reach around 40 per cent of households, and cover 75 per cent of those in the poorest four income deciles. A £2 billion scheme could provide an average of £175 per eligible household, or be tiered – paying around £220 to those with incomes below £18,000, and £85 above – to favour the poorest. Automatic enrolment via HMRC data should be the destination; for this winter, self-declaration verified by HMRC after the fact is imperfect but deliverable. SPOTLIGHT 2 The new Prime Minister should be prepared to act on energy bills Our new Prime Minister has a full in-tray, but the cost of living is certain to be near the top. When campaigning to be the Labour leader, he said that “Britain is paying too much for the basics” and has already announced a 6-month zero-rating of VAT on electricity bills to give households some “breathing space”. But now conflict in the Middle East is re-escalating, and an apparent breakdown of the fragile peace deal alongside an increase in rhetoric have pushed wholesale gas prices back to around 150 pence per therm. This is close to levels seen shortly after the first attacks, which sent shockwav...