Funding a cut in energy bills with a bank tax

The TUC is therefore calling on government to introduce a social tariff that would help to cut energy bills for the majority of households. 

It can be funded by a windfall tax on the banks, who are raking in massive profits partly helped by higher interest rates.  

Here’s an explainer about why it’s needed, how it would work, and how it could be funded. 

Why is support with energy bills needed? 

The cost of living remains people’s biggest concern, and a big part of this is the rise in energy bills. 

Energy bills drastically increased following Russia’s invasion of Ukraine. They’re now rising again due to Trump’s illegal invasion of Iran. This sent the average household bill soaring by £221 a year in July. And they’re set to rise by another £79 in October.   

What is a social tariff and how does it work? 

A social tariff is a discount on energy bills based on household income.  

It means all eligible households get a cut in their energy bills, with the greatest support provided to the lowest income households.  

Who would benefit from the discount? 

The TUC’s proposal for an emergency energy social tariff would cut help a majority of people with their energy bills. It would see: 

• A 30 per cent reduction to total energy bills for the 17 per cent of households with income below the relative poverty line. This is a saving of up to £517 per year. 
• A 20 per cent reduction for a further 33 per cent of households whose income is above the relative poverty line but below the median household income. This would be a saving of up to £345 a year. 
• A 10 per cent reduction for the additional 15 per cent of households whose income is between the median and mean of household income. This would be a saving of up to £172 a year. 

In total, this would mean that two thirds of households would benefit. 

Would the social tariff just be for emergencies? 

No, even outside energy crises, like the one we’re in now, the TUC is calling for a permanent standard social tariff that would give: 

• A 25 per cent reduction in energy bills for households below the relative poverty line, saving up to £431a year. 
• A 15 per cent reduction for households between the relative poverty line and median, saving up to £259 a year. 

The standard social tariff would be in place permanently, supporting half of all households all the time, and the emergency social tariff would kick in at times when there are acute energy cost crises (as there currently is).  

How much would the social tariff cost? 

We estimate that the standard social tariff would cost just under £4 billion a year. If the emergency social tariff is in place, it would cost £6 billion. 

The TUC’s model for an energy social tariff can be funded through a windfall tax on bank profits.  

Why should banks be taxed more? 

Banks have been making excessive windfall profits in recent years, partly due to the high interest rates that are hitting working people. While households struggle to pay their bills, banks are handing out the biggest bonuses since the financial crisis. That isn't fair, and it isn't inevitable. The banks have had their windfall; now working people need relief. 

How much can be raised from a windfall tax on banks? 

A windfall tax on bank profits would be done by increasing the Bank Surcharge, which is currently a 3 per cent tax on bank profits over £100 million.  

The surcharge was previously 8 per cent, but was cut by the then Conservative government in 2023. 

Reversing the cut and returning the surcharge to 8 per cent would raise an estimated £8bn over four years. 

Increasing the surcharge to: 

• 16 per cent would raise £20 billion over the same period 
• 35 per cent, the same level as the windfall tax that the Conservatives imposed on energy companies, would raise £50 billion over the next four years. 

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