The UK energy market does not price its two main domestic fuels on equal terms. Over the past two decades, most policy costs have been added to electricity bills: the Renewables Obligation, Contracts for Difference, Feed-in Tariffs and much of the social support schemes. Gas bills have carried a far smaller share. Budget reforms from April 2026 moved part of this burden onto general taxation, but electricity still bears a markedly heavier policy load per kilowatt-hour than gas.
Carbon pricing reinforces the imbalance. Power stations pay for their emissions under the UK Emissions Trading Scheme, and that cost reaches retail electricity prices. Gas burned in a domestic boiler faces no equivalent carbon charge. Add the reduced 5% VAT rate on domestic fuel, upstream tax allowances for North Sea investment, and the health and climate damage that nobody pays for, and gas benefits from both explicit and implicit subsidy. The International Monetary Fund counts these unpriced externalities as the largest component of global fossil fuel subsidies.
These macro distortions set the terms of the household decision. With electricity typically priced at around four times gas per unit, a heat pump running at a seasonal efficiency of 300% only narrowly beats a modern boiler on running costs. The payback period on a heat pump therefore looks longer than it would in a market where each fuel carried its true cost. Homeowners, landlords and investors are responding rationally to a price signal that is structurally wrong.
Rebalancing levies between electricity and gas, whether through phased transfers to taxation or a carbon price on heating fuel, is the single most powerful lever available to policymakers. For commercial landlords and clean-tech investors, the direction of travel matters more than today’s tariff sheet: every step towards cost-reflective pricing improves the economics of electrified heat that is already installed.