The Conservative policy document puts it plainly: scrap the carbon tax, abolish the Carbon Border Adjustment Mechanism alongside it, and freeze VAT on household energy bills for three years, saving the average family around £200 a year. The figures are clean, the posture direct, and it sounds like relief for households worn down by expensive power. The trouble is that the tax sitting on a bill and the cost of generating electricity are two different things. This plan moves the former and never touches the latter.
To see why, start with how Britain’s electricity price is actually set. The market runs on marginal pricing: every half hour the system calls up the cheapest power first and works up the cost ladder until demand is met, and the last and most expensive unit needed sets the price paid to all of them. In Britain that price-setting unit is still a gas plant roughly 60% of the time in 2026. However much cheap power wind and solar pour in, as long as a little gas is burned to fill the gap at that moment, the whole market price tracks the international gas price. In 2021 that share was 90%; it has fallen to 60% because renewables and storage have steadily pushed gas out of the price-setting seat.
Once that chain is clear, the plan’s moves stop holding up. Issuing more drilling licences and squeezing the North Sea dry sounds like self-sufficiency, but Britain is a price taker on the global gas market, not a price maker. The North Sea holds a tiny fraction of world reserves, and output has been declining naturally for more than 20 years. A few more fields would support jobs, but not necessarily tax, because the same plan also repeals the Energy Profits Levy, which brought the Treasury £2.9 billion in 2024/25. Wipe that out, with investment reliefs for new drilling on top, and the books are more likely to show less revenue than more. The international gas curve will not move an inch for any of it, and while gas holds, the marginal price holds, and not a penny comes off the bill.
The carbon tax cut needs to be weighed carefully. Britain’s own Carbon Price Support is frozen at £18 a tonne, and removing that layer alone saves the average household about £15 a year; strip out the main UK Emissions Trading Scheme as well, and with carbon recently accounting for around 37% of the wholesale electricity price, the rough saving is somewhere between £40 and £80, well short of £200. And when wholesale prices fall, the subsidies paid through Contracts for Difference rise to fill the gap, clawing much of it back. At bottom this only lowers the marginal cost of gas-fired power once, while gas still rules the price, and carbon pricing and net-zero investment are the very forces that have been pushing gas out of the price-setting seat. The bigger cost is what scrapping the UK ETS drags in behind it. The EU’s Carbon Border Adjustment Mechanism took effect in 2026, taxing imported steel, cement, aluminium and fertiliser at the EU carbon price. Britain had been planning to link its ETS to the EU’s to win an exemption; tear the scheme out and that link is severed, and exporters pay the carbon tariff at the EU border instead. Around 75% of UK steel exports go to the EU, a market worth nearly £3 billion, and industry reckons CBAM alone could cost British manufacturers some £800 million a year. The carbon cost does not vanish; it simply turns from a tax Britain collects, and can bargain with, into a carbon tariff Brussels collects at the border. Save a household a few tens of pounds, then hand a far larger sum to the EU: the arithmetic does not work.
Freezing VAT is more sticking plaster than treatment. VAT on household energy in Britain is only 5%, not 20%, and abolishing it saves about £86 a year per household. But that £86 does not come from electricity becoming cheaper to produce; it comes from the government handing back tax it would otherwise have collected, which is the same as writing every household an £86 cheque. The cost is £2.2 to £2.5 billion in foregone revenue a year, and frozen for three years that is around £7 billion vanishing from the Exchequer, money that has to be found through borrowing or through tax rises and spending cuts elsewhere. The measure tests fiscal appetite, not energy policy; any party in any government could do it tomorrow, and it has nothing to do with generating a single unit of power. Worse, it lasts only three years. Peel the plaster off and the tax returns, the bill springs back, and the wound is exactly as deep as before. The money is spent, the price has not moved, and after three years it is back where it started.
There is only one route that genuinely brings the price down: drive gas out of the price-setting seat. That means continuing to roll out wind and solar to build up cheap volume, adding low-carbon firm power that holds up when the wind drops and the sun sets, with nuclear as one piece of it, and using storage to hold surplus power, from batteries to longer-duration storage, together with interconnectors and an upgraded grid, so that on still, overcast nights the system no longer has to burn gas to set the price. This is the same combination that has been edging gas out over recent years. But it is neither cheap nor quick. It demands heavy capital up front, nuclear routinely takes a decade or more and overruns are almost the norm, with Hinkley Point C the standing example, and grid and storage spending lands first on the network and policy costs of the bill, while the cheaper wholesale price shows up only later. Cost first, return later: that is exactly why it is politically hard, and why a VAT plaster is so tempting.
Adding the pieces up to £200 is not difficult. What is difficult is that the whole £200 comes from the government lifting its own slice off the bill, not from power becoming cheaper to generate. British electricity is dear because at the margin it still leans on gas, because it entrusts its own price to an international commodity it cannot control. Until that structural chain is broken, every promise of cheap power is a discount on the symptom, not a cure for the cause.
