For Every £1 You "Save" on Energy, Rachel Reeves is Taking £8 Back in Tax
The government promised a bill cut for families. The data tells a different story: a massive, eight-fold tax grab on the average worker that the Treasury hoped you wouldn’t notice.
At the Budget, the Chancellor promised an “average £150-a-year cut” to household energy bills. It was sold as a lifeline for families—but the data shows a reality for the average worker that is far more bleak.
The state is currently taking nearly eight times more in extra taxes from an average worker than it is giving back through energy bill discounts. The celebrated “saving” is nothing more than a fraction of the extra tax being seized by the Treasury.
👤 The 8x Tax Hit: How the Math Really Works
The true impact of the government’s economic policy is clear when looking at the average (median) full-time worker. By comparing the tax burden from the 2024-25 financial year (covering most of Labour’s first year in office) to the 2026-27 financial year, the scale of the “tax grab” is undeniable.
Like most people, the average earner is seeing their pay rise to keep up with the cost of living. But there is a catch: while pay goes up, the tax thresholds do not.
By keeping tax thresholds frozen, the government ensures that every pay rise a worker receives is taxed at a higher proportion. Based on ONS data and wage growth trends, here is the progression:
FY 2024-25: £37,430 (ONS Median)
FY 2026-27: £40,601 (Applying wage growth projections)
The Reality for the Average Worker:
Direct Tax (Income Tax + NI) in 2024-25: £6,961
Direct Tax (Income Tax + NI) in 2026-27: £7,849
The Total Tax Increase: £888
The 8x Ratio: While the latest Ofgem figures show a typical household saving of around £117, the state is quietly seizing £888 in extra tax from that same worker. That is nearly eight times more taken than given back.
👨👩👧👦 The Two-Earner Trap: 15x More Taken
Energy bill support is per household, but the tax is per person. This makes the math even more punishing for working families. In a two-earner household where both partners earn average wages:
Household energy saving: Still only ~£117.
Combined tax rise: £1,776 (£888 x 2).
The Shocking Reality: For every pound the government shaves off the energy bill, they are taking over £15 back from a working couple.
🕳️ Same Cost, Different Pocket
This is not a “cut” in the sense of making energy cheaper. It is a shift from the household to the taxpayer.
For years, it has been argued that policy costs—such as green subsidies for Net Zero and social obligations—should never have been loaded onto energy bills in the first place. These levies acted as a regressive tax on basic heating and lighting.
Now, the government is finally moving them off bills and into the Treasury, meaning they are funded through general taxation. But while the shift is long overdue, the way it is being handled is a shell game. Those who pay into the system are now being forced to cover the bill reduction for those who do not. The government “gives” a saving to the household, but because those costs are now in the general tax pool, they are recovered directly from workers through the stealth of frozen thresholds.
🏗️ Treating the Symptom, Not the Disease
The UK’s energy security remains fragile. In fact, despite the spin, the Ofgem price cap of £1,641 for April-June 2026 is actually higher than the £1,568 cap when Labour took power in July 2024.
Shifting charges to taxation is just moving numbers around a spreadsheet. A serious plan requires a proper structural overhaul:
Stop relying on expensive imports from abroad.
Increase the use of our own natural resources.
Build a resilient, self-sufficient supply.
Hiding the price tag in a monthly payslip doesn’t make energy cheaper; it just masks the long-term burden of Net Zero subsidies.
🎯 The Bottom Line
The government pledged to protect “working people,” yet the analysis shows they are the ones footing the bill for the “household” savings. By refusing to increase tax thresholds in line with wages, the state is quietly seizing a higher proportion of people’s earnings.
The average worker is hundreds of pounds worse off.
A bill cut is a one-off headline. A tax hit via fiscal drag is a permanent, monthly erosion of a worker’s paycheck. That is the real trade-off the government doesn’t want you to calculate.
✍️ Jamie Jenkins
Stats Jamie | Stats, Facts & Opinions
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