From broken systems to better living: Why whole-home solutions are the key to affordability and decarbonisation
From broken systems to better living: Why whole-home solutions are the key to affordability and decarbonisation
Every week, I see the same frustration from households: how can gas still be cheaper than electricity? How can a molecule of methane cost less than a joule of sunshine-derived electrons?
The answer lies in our tangled system of levies and subsidies.
Environmental and social surcharges are loaded heavily onto electricity bills currently, while gas enjoys much lighter taxation. This price distortion is slowing down the move to greener homes and making it harder to achieve our net zero ambitions. It’s time for a whole-system rethink – one that considers the full home, not just the boiler, and realigns prices with climate priorities.
Levies on electricity account for roughly 16% of the pre-VAT electricity bill. A typical household pays about £140 a year in green levies on electricity, compared with just £50 on gas. In fact, about 82% of the funds raised through these levies come from electricity customers, despite households consuming roughly three times more gas than electricity. Domestic gas is also taxed at just 5% VAT, while most goods face 20%. The net effect: gas is effectively subsidised, while electricity is penalised. The result is a self-reinforcing loop where electric heating – whether via a heat pump or innovative new electric technologies – struggles to compete on running costs, slowing down the decarbonisation of homes.
This imbalance directly impacts the goal of cleaner homes. Data shows that renewables and electric heating can cut both carbon and energy bills – but only if households can afford to switch. With levies making up circa 25% of an electricity bill (including VAT), compared with only 6% for gas, the price signal is skewed. And it’s the most vulnerable who suffer most. With approximately six million UK households living in fuel poverty, we must confront whether our levies unfairly constrict the path towards fuel equity and net zero.
Two paths to fix the levy problem
There are two main routes to reform, each with trade-offs:
1. Shift Levies to General Taxation. Removing green levies from energy bills and funding them through general taxation would make the system more progressive. It would also protect low-income households, thus aligning with the just transition needed for net zero. Although politically challenging, Nesta’s analysis indicates that reallocating just the two largest levies – the Renewables Obligation and Feed-in Tariff – could cut bills by £180-£300 per year for households relying on electric heating. This aligns with the government’s broader goal of lowering energy costs by £300, while simultaneously promoting the adoption of clean technologies.
2. Rebalance Costs from Electricity to Gas. An alternative is to rebalance existing levies across gas and electricity. This would mean a slight rise in gas bills and reduce electricity costs, achieving a more 3:1 electricity-to-gas price ratio. Electrified homes reap significant savings, while dual-fuel homes would see limited net effects. However, safeguards are vital to prevent undue burdens on vulnerable households reliant on gas. As gas demand falls, remaining customers could face rising costs. Targeted discounts must be implemented to shield low-income households from these impacts, ensuring equitable outcomes and advancing the Warm Homes Plan.
Neither approach is perfect. A pragmatic strategy might blend both: gradually shifting levies off bills and onto taxation, while initially rebalancing some costs toward gas with strong protections in place.
Beyond the boiler: A whole-home view
Fixing price signals alone isn’t enough. Homes are complex systems, and decarbonisation succeeds best when viewed holistically, not appliance by appliance.
The most resilient, cheap-to-run home is a leak-sealed, battery-backed, solar-charged, electrified dwelling. These elements work together to reduce energy needs and shield households from market volatility. The Climate Change Committee calls energy efficiency the “first fuel” of transitions and our mantra at Utilita is ‘the cheapest and greenest energy is the energy we don’t use’. We should therefore emphasise the full retrofit approach.
Insulation and draught-proofing cut bills by reducing wasted energy; meaning electrified heat systems then need fewer kWh to warm the house. Added rooftop solar and battery storage fill those kWh with cheap power. Once waste is minimised, electrified heating systems require far less energy to maintain comfort.
Studies show that a well-insulated, solar-equipped home can save more than £1,000 per year, providing substantial financial and carbon benefits – while also protecting against future energy price spikes.
Breathe easier
There’s another powerful reason to prioritise whole-home electrification: health.
Burning gas indoors releases nitrogen dioxide, particulates, and other harmful pollutants. Research from Columbia University found that simply replacing a gas stove with an induction cooker cut indoor NO₂ pollution by over 50%. European research attributes gas stoves to tens of thousands of asthma cases and even premature deaths annually.
Electrifying the home yields a tangible lifestyle lift. Indoor air goes cleaner, sick days go down, and cold winter mornings become a memory. Crucially for Government and taxpayer money – NHS costs fall. In short, net -zero at home isn’t just an abstract climate goal, it can also feel like a breath of fresh air.
Targeted support… and it’s sunset?
Market reforms alone won’t bridge the affordability gap. Targeted government support has been vital to accelerating change, but risks being withdrawn too soon.
The Boiler Upgrade Scheme (BUS) currently offers up to £7,500 towards the cost of a heat pump, and reforms are underway to expand its scope, including private financing options for new technologies. Solar must be included within the remit of the improved scheme. Similarly, ECO4 funds insulation and efficient heating upgrades for low-income households, with ECO5 set to follow.
To date, these programmes have driven thousands of retrofits – but with BUS due to end in 2028, there’s a real risk of a cliff-edge. Without sustained, accessible support, mass market uptake could stall just when momentum is needed most. Some argue that heat pumps, like solar panels, must eventually stand on their own without permanent subsidy. While true in the long term, the reality is that market maturity takes time, and prematurely pulling the ladder could leave the UK’s net zero ambitions half-built.
Keeping the sun in the picture: Solar, storage and prices
As we debate cutting electricity prices via levy reform, it’s important to remember the economics of rooftop solar and batteries. A proven technology, that with today’s high retail power price means that solar panels pay for themselves quickly by offsetting expensive grid electricity. If levies fall and grid electricity gets cheaper, the annualised savings from solar generation will shrink correspondingly. In other words, a lower kWh price reduces the gap that solar fills. We must not inadvertently disincentivise clean generation at home. Fortunately, grid-friendly policies (time-of-use rates, export tariffs, smart-charging incentives) can keep the numbers attractive. Ultimately, we should aim for both cheaper clean energy and plentiful clean generation: smart design can allow falling electricity bills while preserving a positive return on investment for solar owners.
A fairer, cleaner path forward
Transforming the UK’s energy system won’t be simple, but the direction is clear.
We must shift from a world where gas looks cheap and electricity costly. Pricing must reflect true climate costs, while protecting the most vulnerable. Homes should function as integrated systems: improving efficiency to reduce demand, electrifying heating, and enabling smart clean generation. Strong incentives for innovation, investment, and adoption are essential.
The outcome? A UK with warmer, cheaper-to-run, healthier homes – where doing right by the planet is the affordable choice for families. Building that future begins with getting the basics right today.