The UK plans to weaken the link between electricity bills and gas prices within about a year and will raise a windfall tax on some generators, aiming to shield households from future price spikes.
The UK government on Tuesday set out plans to change how electricity is priced, aiming to insulate households from bill shocks driven by spikes in international gas markets. Ministers say they want to weaken the link between electricity and gas prices within about a year, subject to consultation.
No official savings figure was offered, though the government said they could be “significant.” Analysts cited in the briefings expect any reduction to be modest but say bills should become more stable. The move follows renewed concern about Britain’s exposure to fossil fuel volatility, including recent tensions involving Iran.
Under the proposal, older clean energy projects that now benefit when gas sets a high market price would be shifted onto fixed-price contracts. Those projects—accounting for about a third of Britain’s electricity generation—would be paid a set renewable price plus any previously agreed subsidy, bringing them into line with newer developments that already receive fixed prices.
At present, the wholesale power price is typically set by the final unit needed to meet demand, which in Britain is often gas-fired generation. That means a jump in gas prices can lift electricity bills across the board, even when wind and solar output is strong. Many European countries less reliant on gas are not as exposed to such swings.
The government stressed it is not overhauling the entire power market and that gas will continue to play an important role when the wind drops or the sun is not shining.
Ministers also announced that the windfall tax on “excess profits” earned by some electricity generators will increase to 55% from 45% on 1 July and be extended beyond 2028, when it had been due to expire. Introduced in 2023, the levy targets certain generators with older renewable contracts that can profit when gas prices surge. Officials say the tougher levy is designed to support cost-of-living measures and encourage companies to opt into new fixed-price deals, which would not be taxed in the same way.
Energy Secretary Ed Miliband said, “you can’t solve a fossil fuels crisis by doubling down on fossil fuels,” arguing that a shift to clean power is key to tackling climate change and keeping bills down. The opposition Conservatives said high prices are being driven by taxes and levies on bills. Shadow energy secretary Claire Coutinho said, “If we want people to use electricity, then we need to make it cheap.”
Other parties offered a mix of support and criticism. The Liberal Democrats urged the government to break the link between electricity and gas prices so households see lower costs as renewables grow. The Green Party said the plans were welcome but overdue, while Reform UK argued subsidies for some clean energy projects add to bills. Plaid Cymru backed the direction of travel but pressed for deeper reforms. The SNP was contacted for comment. Northern Ireland operates in a separate energy market.
The pricing plans will now go to consultation. The government believes the changes could be implemented in around a year. Miliband also outlined moves to amend planning rules to make it easier for people without driveways to charge electric cars and for more businesses to install solar panels, as part of a wider push toward clean electric technologies.
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