The Budget must make clean heating affordable for homes and businesses
Russell Dean, Deputy Divisional Manager (Living Environment Systems)
| Mitsubishi Electric
Russell Dean, Deputy Divisional Manager (Living Environment Systems), Mitsubishi Electric, sets out why the Government must maintain momentum on its ambition to bring down electricity prices and benefit consumers, businesses and manufacturers.
At Party Conference, the Prime Minister announced his Government would look to “break the link” between energy costs and the international gas markets. Following the decision to temporarily remove VAT from electricity bills, this week he has taken the next steps towards doing so, asking the Chancellor and Energy Secretary to examine removing standing charges from gas bills.
This move shows that the Government recognises the need to change how people pay for energy.
That objective aligns with a new report we’ve published with Energy UK, Sparking Change, which argues that making electricity more affordable is essential to reducing bills, strengthening energy security and supporting economic growth.
Making electricity the affordable choice
The high price of electricity, relative to gas, is known as the ‘spark gap’. Electricity is approximately four times as expensive per unit compared to gas.
This disparity has several negative knock-on effects for consumers, businesses and policymakers. One key issue is that it weakens the financial case for switching to clean heating.
Even though heat pumps are more efficient than boilers, the fact that policy costs are loaded onto electricity bills makes it harder for households to benefit from that efficiency. By removing these, a typical household switching to a heat pump could save over £300 a year, and this is something we urge Government to address in the Budget.
Cheaper electricity, combined with the existing support for installation costs through the Warm Homes Plan, will make heat pumps more accessible, affordable and appealing to own and run.
Setting a direction and providing clarity
One of the recommendations in the report is for gas standing charges to be moved onto the unit rate - the Prime Minister seems committed to this policy.
In addition, the Energy Security and Net Zero Select Committee has released a report this week that largely mirrors many of the Sparking Change report recommendations on energy policy costs. With such clear support for tackling the spark gap, the Government must maintain momentum and set out a clear programme of action to bring down electricity costs.
Providing that timetable will build confidence in what is to come. This is essential for driving adoption of clean heating technologies.
Backing British business and manufacturers
It won’t just be consumers and the clean heating sector that benefit from tackling the spark gap.
Businesses are equally exposed to volatile gas prices, and by delivering electricity bill relief for all businesses, we can create significant economic benefits.
A package of changes could cut electricity costs by up to 20% for some businesses, easing pressure on operating costs and freeing up money for investment.
Alongside cheaper electricity, tailored support would make clean heating more accessible to businesses of all sizes. For smaller firms, a Business Energy Upgrade scheme offering advice, grants and low-cost finance would help overcome upfront costs.
Greater uptake would also create opportunities for manufacturers of clean heating technologies. At Mitsubishi Electric, we’re proud to manufacture heat pumps in Livingston, Scotland, where investment in production capacity and skills is a long-term commitment. A clear plan to make clean heating affordable would strengthen demand and give manufacturers greater confidence to expand production.
Use the Budget to put a plan in place
The benefits of tackling the spark gap are recognised across Government, Parliament and industry. That makes it even more important for the Government to build on its commitment on standing charges and set out a plan in the Budget to further drive down the cost of electricity.
Acting decisively now will put in place changes that support the Prime Minister’s wider ambitions: relieving cost-of-living pressures, strengthening industry, and supporting British reindustrialisation.
We welcome the new Government working with industry to create a long-term approach that utilises all possible policy levers to narrow the spark gap.
