Nesta, the independent research and innovation foundation, started a project in August 2024 examining how different approaches to rebalancing policy levies on electricity and gas affect the energy bills of UK households. The project is ongoing1.
Policy costs fund a range of environmental and social schemes, and over 80% of the cost is currently added to electricity bills, according to Nesta1. The organisation states that this makes electricity too expensive relative to gas, slows the transition to low-carbon heat, disproportionately affects fuel-poor households with electrical heating, and keeps millions of households reliant on gas for longer1.
Nesta gives the following figures on the gap between electricity and gas prices and on gas bills1:
| Measure | Figure |
|---|---|
| Electricity unit cost relative to gas, April 2025 | 3.9 times more expensive |
| Electricity unit cost relative to gas, under July 2025 price cap | 4.1 times more expensive |
| Annual gas bills this winter compared with early 2021 | £400 higher |
| Potential annual saving for a typical gas-using household switching to a heat pump, if levies moved to gas bills | around £500 |
Nesta states that the UK has the highest ratio of electricity-to-gas prices in Europe, and describes the current placement of policy costs as effectively acting as a reverse carbon tax1. It says that to reach the UK's climate goals, 1 in 10 homes will need to switch to low-carbon heating over the course of this parliament1.
"If levies were moved to gas bills, a typical gas-using household could save around £500 per year by switching to a heat pump."
The project modelled rebalancing scenarios using Ofgem's consumer archetypes, covering options such as moving levies between electricity and gas bills, shifting them to general taxation, expanding existing targeted energy support for fuel-poor households, or combining these approaches1. Nesta says any redesign will need to carefully consider the potential impacts on vulnerable low-income households, because changes to electricity and gas prices would affect households differently depending on the type of heating they use and their home's energy efficiency1. The project produced recommendations on how levies could be rebalanced fairly, supporting those in fuel poverty and mitigating the risk of high bill increases through targeted support and taxpayer funding1.
Why it matters for households
The policy costs and levies on energy bills are recovered mainly through electricity standing charges and unit rates, so the balance between electricity and gas prices shapes what a household pays for each unit of energy it uses. For a home heated by gas, the current split means gas remains comparatively cheap per unit, while a home using electrical heating pays a rate that carries most of the levy burden. Nesta's figures indicate that the price relationship between the two fuels is widening, with the electricity-to-gas ratio rising from 3.9 to 4.1 under the July 2025 price cap1.
For a household considering a heat pump, the running-cost comparison against a gas boiler depends heavily on that ratio. Nesta's estimate of around £500 a year in savings from switching, if levies moved to gas bills, is a modelled outcome of one rebalancing option rather than a current saving available on today's tariffs1. The distributional effect also varies: households with low incomes, poor energy efficiency or electrical heating already in place could face different outcomes from those with gas heating, which is why Nesta says targeted support would need to accompany any redesign1. The wider context is set out in energy bills and energy independence, and the underlying price relationship is covered in wholesale gas and electricity prices.
What happens next
Nesta describes the project as ongoing, having started in August 20241. It has published a full report, "How to make electricity cheaper", and a technical blog on its modelling, and a related blog dated 30 September 2024 argues that levies on gas should rise1. No government decision on rebalancing levies has been reported1.