Policy paper

Warm Home Discount (WHD): cost recovery – CFP response

Published 13 January 2026

Applies to England, Scotland and Wales

6 January 2026

The Committee on Fuel Poverty (the Committee) is an Expert Committee sponsored by the Department for Energy Security and Net Zero (DESNZ). The Committee advises on the effectiveness of policies aimed at reducing fuel poverty and encourages greater co-ordination across the organisations working to reduce fuel poverty.

The Committee welcomes the opportunity to comment on DESNZ’s consultation on Warm Home Discount (WHD) Cost Recovery. As energy bills remain higher than before the surge in global energy prices, affordability for households due to low incomes, poorly insulated homes and/or health conditions or disability requiring a greater use of energy remains a challenge.

The policy proposal would move WHD cost recovery from the standing charge to the unit rate (per kWh) for both gas and electricity. This would shift the c. £39 currently recovered via standing charges on a typical dual fuel bill into unit rates. In practice, this would mean updating the WHD reconciliation mechanism, so suppliers settle costs by demand/volume rather than customer numbers. Ofgem is consulting in parallel to amend price cap methodology, so the cap recovers WHD volumetrically from 1 April 2026 if the policy proceeds.

The Committee welcomes the opportunity to comment on the fairness of the proposal and impact on fuel poverty. However, we note this consultation limits itself to a small element of the standing charge and the impact on reducing fuel poverty would be marginal. It is important that this proposal is not seen in isolation from other policies which may have negative impacts on fuel poverty.

The Committee responded to earlier DESNZ consultations on the Warm Home Discount and Ofgem’s Call for Input on Standing Charges and Affordability and Debt which in addition to our response on this consultation we direct the department to align and consider.

• DESNZ Open Consultation - Continuing the Warm Home Discount Scheme (20 November 2025)
• DESNZ Open Consultation - Expanding the Warm Home Discount Scheme, 2025 to 2026 (24 March 2025)
• Ofgem Call for Input - Standing Charges (17 January 2024)
• Ofgem - Call for Input - Affordability and debt in the domestic retail market (7 May 2024)

Question 1

Considering the impacts across all consumers, including impacts on protected groups, do you support moving WHD costs to the unit rate? (yes/no) Please explain your reasoning and provide any supporting evidence.

On balance, yes. However given the sums of money involved, this is tinkering around the edges of bills rather than substantial reform.

Research commissioned by the Committee shows that standing charges are unfair to some low-income households^{[footnote 1]}. Most of the comment on charges to energy bills relates to the day-to-day unit costs which have risen substantially and remain at high levels compared to 2019. Our research looked at the fixed elements of the bills, the standing charges. As a flat rate charge on every household, the standing charges are regressive in that they affect rich and poor to the same extent, irrespectively of actual consumption. The research noted that “Currently, the lowest-income 5% of households typically allocate 1.1% of their income to low-carbon policy costs, compared to 0.18% for the highest income group.” Summarising “those least able to pay are being disproportionately charged for net zero”.^{[footnote 2]}

Warm Home Discount makes an important contribution to bill support for fuel poor households. Whilst the number of beneficiaries has grown, in real terms the WHD has declined in value remaining at the level set in 2022, £150. In addition, the benefit per household is marginally reduced, as of the £150 received, the cost of the scheme is an additional £15 per household, increasing the element of the standing charge to £37. Therefore, barring any other mitigated savings which reduce the standing charges, each fuel poor household will receive £15 less from the scheme going forward.

Standing charges are a flat fee that could be considered regressive; low use, often lower income households pay a larger share of their bill in fixed costs. Therefore, linking recovery to consumption can be more progressive. However, given that this affects such a small proportion of the overall standing charge, it is not realistic to expect people to reduce consumption to save on this. Also, we would not encourage consumers living in cold homes to ration their energy usage which could have adverse health consequences.

The DESNZ consultation paper identifies that:

• Modelled impacts on the proposal in isolation suggest more households gain than lose; for low income households, ~2.8m better off (avg −£17) vs ~1.9m worse off (avg +£22) (nominal, incl. VAT). However, in practice some high energy use households (eg those with medical related consumption) could see their bills increase (in isolation) if this proposal is taken forward. This may also impact those low-income households in poorly insulated homes too.
• The Autumn Budget measures mean from April 2026, the Budget removes ~£150 of costs from bills and lowers electricity unit rates; combined with the WHD shift, typical and high electricity households (eg, storage heating) see net bill reductions (illustratively up to −£395 for high use electricity).
• For those households in fuel poverty the overall impacts on fuel poverty metrics are marginal relative to model uncertainty; the change primarily improves distributional fairness.

The Committee is concerned about whether shifting costs to the unit rate would improve fairness as much as the policy suggests, for example, those fuel poor households not on means tested benefits or for those with pre-payment meters who cannot stagger their payments over a year in the same way as those on direct debit. In practice some high energy use households (eg those with medical related consumption) could see their bills increase (in isolation) if this proposal is taken forward.

Whilst it would deal with one regressive element of the standing charge further modelling to understand and control not only the impact of the financial cost of standing charges and unit rates but also other consumer behaviour to offset bills is important to develop a coherent strategy to underpin the next Fuel Poverty strategy.

Question 2

Are there alternative approaches you think should be considered specifically to mitigate potential negative impacts on consumers? Please explain your reasoning.

The most obvious way to avoid a negative impact on those households in receipt of WHD would be to exempt those households from paying any enhanced unit rate and distributing the full cost recovery across all the remaining bill payers who are overwhelmingly better off.

That said, WHD makes a positive contribution to reducing fuel poverty however it is paid for. But it is only one policy contributing support to those in fuel poverty. Which is why tackling other direct and indirect energy policies that impact on ending fuel poverty and improving affordability are still key. These include:

• improvements in targeting and delivery of energy efficiency programmes
• consider mandating provision of a variety of tariffs and obliging suppliers to use data on energy use to put their customers on the best combination of unit rate and standing charge for their energy usage
• further developing discussion amongst stakeholders about the options for payment-support for those low incomes and/or vulnerable households
• best practice expectations for supplier engagement and pathways for customers vulnerable to, or in, debt
• considering and publishing the impacts on fuel poor/low-income households, in advance of introducing policies which add to bills
• considering spreading the costs of, for example, new energy investment, to bill payers over longer periods of time
• assessing the stark variations, between regions, to evaluate the validity of maintaining differential regional costs

There continues to be an escalating issue around bills, debt and affordability. Industry initiatives could be steered to address these deep systemic issues. For example, in 2024, there were an estimated 2.73 million households in fuel poverty and debt, and arrears reached a record high of nearly £4bn in the domestic sector^{[footnote 3]}. There is insufficient support in existing electricity and gas tariff structures for those in fuel poverty, leading to cost inequity during the transition to net zero. Both the fixed and variable elements of energy bills have risen significantly since 2021, exacerbating financial pressure on fuel poor and vulnerable households. Fixed elements of bills, namely standing charges, are regressive but are also being driven to increase through policies supporting net zero. Therefore, those least able to pay are being disproportionately charged for net zero. The findings also point to increasing divergence between fuel poor households and those more able to access and take advantage of smart time of use tariffs.

Incentivising energy use during off peak hours is likely to generate savings in affluent households where smart appliances and significant electrification in the home exists, such as electric vehicles, heat pumps, solar generation and battery storage.

This contrasts markedly to a typical fuel poor household without these pieces of technology, who may be self-rationing, and unable to load-shift due to household requirements or working patterns. As outlined above currently, the lowest-income 5% of households typically allocate 1.1% of their income to low carbon policy costs, compared to 0.18% for the highest-income group. If a more equitable split of costs for net zero are to be borne by the fuel poor, structural pricing reform would be appropriate. Indeed, the vast majority of households (88% in 2022) do not make use of time of use tariffs.^{[footnote 4]}

Question 3

To support the rebalancing of costs between gas and electricity, do you think the government should consider placing greater cost recovery of the WHD onto gas (yes/no) Please explain your reasoning.

The impact of a shift onto the gas unit price on different groups of bill payers is difficult to accurately predict without the government undertaking some detailed modelling. In the absence of detailed modelling, one could assume that the majority of households reliant on gas to heat their homes will include a higher proportion of fuel poor and low-income households than among those households who rely exclusively on electricity. Therefore, any loading of the cost recovery of the WHD on to the gas unit rate might have an adverse distributional impact.

One way to be certain on this is to undertake accurate modelling. Also as stated earlier the one guaranteed way to avoid any negative impact on, for example, households in receipt of WHD would be to exempt those households from paying any enhanced unit rate and recovering the cost of WHD only from all the remaining households.

1. Exploring options for improving energy bill equity for fuel poor households ↩

2. Full article: Reducing inequality resulting from UK low-carbon policy ↩

3. Fuel poverty has not fallen ‘to any meaningful extent’ in 5 years ↩

4. Which? - Response to the Future Default Tariffs Call for Evidence ↩