Social and Environmental Obligations, a charge that funds policy schemes through energy bills, were removed from household bills from October 2022. The Chancellor is paying for those schemes through taxation instead of charging them to energy billpayers, as part of the government's energy support1.
The obligations cover policy schemes such as supporting energy efficiency improvements, helping vulnerable households and encouraging uptake of renewable technology1. Under Ofgem's breakdown of the October price cap, published in August 2022, the policy element accounted for 0.9 per cent of a typical household bill, or £22.75 on an annual bill of £2,5001. That figure sits alongside wholesale energy prices at 75 per cent (£1,884.75), network costs at 8 per cent (£204.25), VAT at 5 per cent (£113.50), operating costs at 6 per cent (£159.00) and Supplier of Last Resort costs at 1.8 per cent (£45.50)1. The same breakdown lists an adjustment at 0.9 per cent (£22.75), headroom at 0.9 per cent (£22.75), a direct debit uplift at 0.5 per cent (£13.50) and the smart meter roll-out at 0.4 per cent (£11.25)1.
The removal took effect alongside the Energy Price Guarantee, which fixes unit rates for households for two years from October 20221. Ofgem had announced in August that the price cap would see annual bills for a typical household reach £3,549 from October; the Prime Minister then set out plans to freeze unit rates instead, making typical bills £2,500 per year1. For most people in Great Britain, unit rates work out at around 34p per kWh for electricity and 10.3p per kWh for gas1. Reductions come on unit rates rather than standing charges, which stay as Ofgem set them for October 20221.
| Element of a typical £2,500 bill | Share | Amount |
|---|---|---|
| Wholesale energy prices | 75% | £1,884.75 |
| Network costs | 8% | £204.25 |
| VAT | 5% | £113.50 |
| Operating costs | 6% | £159.00 |
| Supplier of Last Resort | 1.8% | £45.50 |
| Adjustment | 0.9% | £22.75 |
| Headroom | 0.9% | £22.75 |
| Policy | 0.9% | £22.75 |
| Direct debit uplift | 0.5% | £13.50 |
| Smart meter roll-out | 0.4% | £11.25 |
"Social and Environmental Obligations, a payment that goes towards policy schemes such as supporting energy efficiency improvements, helping vulnerable households and encouraging uptake of renewable technology, will no longer be included in our energy bills from October. As part of the government's energy support, the Chancellor will be paying for these schemes via taxation instead of charging them to energy billpayers."
Why it matters for households
Moving the obligations off bills shifts a fixed policy charge from billpayers to general taxation, so the amount a household pays for energy no longer includes that element. It does not change the larger components of a bill: wholesale prices make up three quarters of the total, and network costs, VAT, operating costs and Supplier of Last Resort charges remain within it1. The change therefore affects the composition of a bill rather than the dominant driver of its size.
For a home's energy independence, the practical effect is that the cost of the schemes supporting efficiency improvements, vulnerable households and renewable technology no longer sits on the meter. The funding route changes, but the schemes themselves continue, and the source does not report any change to their scope or eligibility. Households on the electricity grid also receive a £67 discount on their October bill, the first instalment of a total £400 payment over the next six months1. Most people see this credited automatically to their energy account, while those paying by traditional prepayment are sent vouchers to redeem wherever they top up1.
What happens next
The Energy Price Guarantee fixes unit rates for two years from October 2022, and the government pays the excess while energy prices for suppliers continue to change1. The £400 discount runs from October 2022 to March 20231. Suppliers will tell customers how the guarantee affects their specific prices, and no application is needed because it is applied automatically1. Those in Northern Ireland have unit rates reduced by up to 17p per kWh for electricity and 4.2p per kWh for gas, the same reductions applying to prepayment customers1. Households still on historic fixed tariffs agreed before the price rises keep their lower unit rates until their contracts end, while fixed tariffs above the guaranteed figures are adjusted down to the guaranteed rates by a maximum of 17p for electricity units and 4.2p for gas1.