The UK government has announced that standing charges will be removed from gas bills and that it intends to also remove them from electricity bills. Standing charges are a fixed fee paid by every household, regardless of how much they use. Under the proposed change, the costs they cover would instead be covered through unit rates, thereby ensuring that the costs are spread more fairly among those using more or less gas.

The budget also extends a temporary suspension of VAT on electricity and introduces a one-off payment of £100 to households in council tax bands A-D. Together, these measures might shave around £130 off the average annual energy bill for struggling households.

In principle, this announcement is welcome. But with energy bills expected to increase by £400 annually from January, these measures raise a bigger question: how should Britain pay for the energy system transformation away from fossil fuels? What if more of the costs were covered through taxation rather than bills?

Energy bills don’t just reflect the cost of supplying electricity and gas. They also include “policy costs”, which fund the greening of the energy system (around 60%) and support for vulnerable households (40%).

These costs add around £300 a year to the average household bill, accounting for around 16% of a typical electricity bill and 6% of a typical gas bill, according to research by Nesta.

Recovering these costs through........

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