John Healey urged to scrap green levy charges from energy bills to tackle cost-of-living crisis

Thank you for subscribing!

UK bills are inflated in part because they contain a range of policy costs, including charges to help our transition to Net Zero

Charges including green levies must be removed from energy bills to tackle the cost-of-living crisis, the Chancellor has been told.

The move could save households £100 a year, a letter to the Treasury, signed by more than 100 industry leaders, said.

John Healey was warned that the UK was “actively sabotaging” its efforts to lower energy costs by “taxing electricity” on bills.

Moving some of these to general taxation would bring down domestic bills, reduce inflation and allow UK businesses “to compete on the global stage”, the letter said.

It warned that high industrial energy prices are driving closures, costing jobs and scaring investors away from the UK.

But bringing costs into line with the G7 would unlock an additional £250 billion of economic output over the next decade.

Moving the levies “would immediately make energy costs more affordable and competitive, providing a greatly needed boost for our manufacturing industries and tackling cost of living challenges”.

The letter was organised by trade body Energy UK and climate think tank E3G. More than 120 names signed, including energy bosses, business leaders, charities and unions.

UK energy costs are 70 per cent higher now than they were in 2021 and among the highest in the developed world.

This has led to household energy debt approaching £7 billion and caused more than 40 per cent of British businesses to cut investment.

Gas prices, inflated by the Iran war, have risen considerably, increasing the wholesale cost.

But non-fuel costs still make up “a significant proportion of the bill”.

Energy UK wants the Renewables Obligation, a legacy support scheme for green generators, and feed-in tariffs, which subsidise small clean power generation, to be removed from bills.

It also called for levies for nuclear power and the Warm Homes Discount, which provides relief for those worst off, to be paid from general taxation.

“The UK is an international outlier in funding most major energy and decarbonisation policies through electricity bills,” the letter said.

A chunk of the Renewables Obligation levy has already been moved from household bills.

But business received no benefits from these discounts and only a handful of manufacturers are eligible for relief schemes, the letter warns.

Moving the policy costs to general taxation would lower household bills by around £100.

Combined with existing policies, this would mean a reduction of almost £250 a year.

Those with electrically heated homes could save as much as £420 a year.

For business, the impact would be starker, with the letter predicting a cut of up to 20 per cent on industrial bills.

The letter warns that continued high prices will have “profound consequences on the cost of living and economic growth”.

“High energy costs are widely recognised as a significant constraint across the economy, driving business closures and job losses, while simultaneously deterring investment in the UK,” it states.

“Without further, more longstanding intervention, high and unstable energy prices will continue to damage household living standards and hinder growth throughout the UK.

“Realising the UK’s economic potential requires a material change in how we approach energy costs.”

Cheaper electricity would have an “outsized economic impact” because it would incentivise the adoption of low-carbon technologies, it said.

“This creates a virtuous cycle, enabling the fixed costs of the electricity system to be spread over more demand, further lowering electricity costs for all customers.”

It said that the clean power drive had already helped reduce the UK’s exposure to volatile gas markets. But more action was needed to lower costs.

“The UK has a clear opportunity to unlock growth and strengthen living standards by addressing high electricity costs”, the Chancellor was told.

“With the right approach, the UK can remove barriers to investment, compete on the global stage, and fully realise its economic potential in a competitive, low-carbon future.”

Ed Matthew, Director of UK Programme at E3G, said: “The UK is actively sabotaging its own efforts to bring down energy costs by taxing electricity.

“Any credible plan to tackle the cost-of-living and enable reindustrialisation needs to include removing these taxes from bills to the Exchequer.

“The scale of support for this letter shows that this demand has united the country. The government must now act.”

Dhara Vyas, Chief Executive of Energy UK, said: “High electricity prices hurt all of us. By taking levies off the bill, the Government can show it is serious about tackling fuel poverty and the cost-of-living crisis, growing the economy, and bringing down inflation.

“Cheaper electricity would have an outsized impact across the economy, encouraging the switch to electric heating, transport and industry and allowing households and businesses across the UK to feel the benefit of the successful rollout of clean power.”

A Government spokesman said: “The Chancellor is fully focused on giving families and businesses breathing space and helping ease cost pressures.

“That’s why we have removed VAT from electricity bills and are reducing electricity costs by up to 25 per cent for more than 10,000 manufacturing businesses through our British Industrial Competitiveness Scheme.”