Lib Dems vow to claw back £5bn in windfall profits from energy network firms to cut household bills

• Lib Dems propose new “essential energy” discount to cut average family bills by £100 immediately, as part of the party’s plan to halve bills within a decade.
• Every household would receive a discount on a portion of their bill (equivalent to 50% of an average household’s use), with the most vulnerable getting the discounted rate on all of their energy use.
• Party calls on Labour leadership contenders to commit to introducing these plans in their first 100 days. 
• £3bn a year plan would be funded by clawing back windfall profits from energy network firms.
• Proposal would cut bills for all households and protect the most vulnerable, while alleviating the more than £1bn spent by the NHS each year treating illnesses exacerbated by cold, damp homes.

The Liberal Democrats have today [8th June] announced plans for a new "Essential Energy Guarantee" to overhaul energy pricing and permanently lower bills for millions of households across the country. This plan would help protect people from global price 

This would save the average family around £100 off their energy bill, helping all households to meet their basic energy needs. The least well-off 20% of families would save £140 a year on average.

As part of the package, families would receive an additional discount for each child they have, to reflect the increased energy costs of running a larger household. 

At a press conference this morning, Liberal Democrat Deputy Leader and Treasury Spokesperson Daisy Cooper MP demanded that energy no longer be treated as a luxury, but as a "basic human need." 

Rejecting the series of short-term temporary "sticking plasters" in recent years, the Liberal Democrats are setting out plans for a structural shift in how basic energy needs are priced for families.

The £3 billion proposal would be paid for by a new clawback mechanism on energy network companies, who do not operate in the same competitive market as energy suppliers and are projected to earn around £5 billion in windfall profits by 2028 due to a loophole in the regulations of Ofgem, the independent energy watchdog.

Implementing an Essential Energy Guarantee is backed by The Joseph Rowntree Foundation, and a clawback mechanism on network operators has been suggested by both the Energy Security and Net-Zero Select Committee and the Institute for Public Policy Research (IPPR).

Similar policies have been introduced in places like Japan, South Korea and California. 

This pivotal move sits alongside the Liberal Democrats’ common sense plans for a new home insulation scheme, de-coupling gas and electricity prices, and stimulating a rooftop solar revolution to bring down bills on multiple fronts. Overall, Liberal Democrat plans would halve energy bills within the next ten years. 

Liberal Democrat Deputy Leader and Treasury Spokesperson, Daisy Cooper MP, said:

“Energy is not a luxury. It’s a basic human need. It’s essential. Every single household in Britain should be able to afford their basic everyday energy needs regardless of what happens in global energy markets, and regardless of who happens to be sitting in Number 10.

“For too long, governments have responded to every energy crisis with short-term schemes and sticking plasters, while big corporations have made a fast buck.

“That is why we are going after the big energy network operators who are gaming the system, to fund our new Essential Energy Guarantee. It is an absolute scandal that a weak regulator has allowed these monopolies to make billions in windfall profits at the expense of bill payers.

“Labour's leadership contenders have a choice: turn a blind eye to the windfall profits of energy network operators and big banks, or step in to guarantee basic dignity for families. Commit to introducing our Essential Energy Guarantee within your first 100 days.”

Liberal Democrat Energy Spokesperson, Pippa Heylings MP, added:

“This opportunity is an open goal for giving families the energy bills relief they have been hoping to see for far too long. The unfair profits accumulated by energy network companies must be reigned in and used for the public good.

“This is the newest part of a package of common sense policies put forward by the Liberal Democrats: solar on every new home, a new home insulation upgrade programme, breaking the link between electricity and gas prices, and removing the renewables obligation levy. 

“Time after time we have put no-brainer recommendations to this government but the pace has remained painfully slow. This time they must not sit on the idea, and instead save families struggling with the cost of living now.”

ENDS

Notes to Editors:

The Essential Energy Guarantee was initially proposed by the Joseph Rowntree Foundation. Details about their proposal can be found here.

The policy introduces a discount on a set portion of energy, equal to 50% of what Ofgem defines as medium annual usage (“Typical Domestic Consumption Value” - TDCV). Medium annual usage according to Ofgem is 2,700 kWh of electricity and 11,500 kWh of gas. The 50% “essential” block of energy would be 1,350 kWh of electricity and 5,750 kWh of gas on an annual basis.

Families with children would receive an extra portion of discounted energy for each child.  Disabled people and the poorest in society, in receipt of means-tested benefits, would receive a discount on all of their energy usage.

Based on modelling done by the Joseph Rowntree Foundation [see figure 2], the middle 20% of households by income would save around £100 a year on average . The poorest 20% of households would save around £140 a year on average.

The total cost of the policy is £3 billion a year. For its first two years, the policy would be funded in the following way:

• £2.5 billion a year would be raised by clawing back the unexpected £5bn windfall made by energy network operator companies under Ofgem’s RIIO-2 price control framework. 
• Another £500 million a year would be raised through the windfall tax on the big banks proposed by the Liberal Democrats in September 2025.

Cold homes and NHS spending: According to the Health Foundation, cold homes are estimated to cost the NHS more than £1bn each year because they exacerbate physical health issues such as respiratory and cardiovascular problems.

Recent polling from Public First shows that energy bills are the living expense that households worry about most, with a plurality (38%) of people identifying them as their biggest financial concern.

Network operator clawback mechanism:

Energy network firms are the private companies who own the electricity and gas network (pipes, cables, pylons etc.) Because they are monopoly companies with no competitors, their profits are regulated by Ofgem.

A flaw in Ofgem’s “RIIO-2” price control framework has rewarded network operator companies with around £5bn in undeserved profits, which are over and above what Ofgem believes is reasonable. Ofgem mistakenly assumed that network companies' borrowing costs would rise with inflation, but the companies had already locked in their borrowing at historically low fixed interest rates. When inflation spiked, this allowed network companies to pocket the difference.

The Institute for Public Policy Research recently recommended a mechanism to claw back this £5bn windfall. More information can be found on page 5 of their “Flex Factor” report. The Energy Security and Net Zero Select Committee also called for a clawback mechanism in October 2025.