The Prime Minister announced an important new policy today, following on the Chancellor’s outline of it last month. He wishes to cut energy bills by cutting some of the green levies placed on our energy bills by the last government. I am all in favour of this new approach.
So what is there to remove or cut? The following is the list of extra charges on an average combined fuel (gas and electricity) bill, showing there are plenty of targets:
Eco (Energy company obligation to pay for Green Deal) £47
Warm home discount (levy to pay for discounts for vulnerable consumers) £11
Smart meters £3
Renewable obligation £30
Feed In Tariffs (solar subsidy etc) £7
EU ETS (EU’s system for taxing CO2 emissions) £8
Carbon floor price (UK’s system for also taxing CO2 emissions) £5
Total £111 (9%)
There is also £60 of VAT (5%) courtesy of Sir John Major’s government and all subsequent governments
Energy and climate change policies add 14% to an average electricity bill, and 5% to a gas bill. Last year the large energy firms received £900m in wind subsidies, paid for by consumers.
What could they cut? The domestic subsidy regimes for particular programmes could be removed. The EU ones would be more difficult to budge, though taking the issue to the EU for change would be worthwhile doing. The government will probably not want to remove the better purposes of domestic schemes to help poorer consumers and to promote better insulation. In these cases they might transfer some of the cost to general taxation.
The way to achieve cheaper power, as explained before on this site, is to reopen closed mothballed older power stations, keep open the remaining lower cost older stations, and to generate more power from them at the expense of renewables. The subsidies for future additional renewable power should be reduced sharply or removed if you wish to cut future bills.
If the government does not change the mix of its current and future electricity generation, it will have limited scope in the years ahead to lower the cost, given the trend to rely more and more on on dear forms of energy, and the need to continue subsidies promised to those who have provided these dearer forms of energy supply.