The typical household energy bill is set to decrease by £150 annually starting in April, as announced by Rachel Reeves. However, some expenses will be shifted onto taxpayers.
The Chancellor plans to eliminate an ‘eco scheme’ initially implemented by the Conservative government, which she says costs households £1.7 billion each year.
This strategic move allows Ms. Reeves to claim a reduction in bills, even though part of the savings will be covered by general taxation.
Addressing the Commons, she declared her intention to dismantle the ECO (energy company obligation) scheme introduced by the Tories.
“The scheme burdens households with £1.7 billion annually, and for 97% of families in fuel poverty, it has cost more than it has saved. It is a failed initiative,” she stated.
She continued, “By abolishing this scheme and removing other legacy costs from bills, I am pleased to announce that every family will benefit from a £150 reduction in the average household energy bill starting in April, fulfilling our promise to lower energy costs and ease the cost of living.”
Labour came to power on a pledge to reduce energy bills by £300-a-year over the course of this Parliament.
The reduction in bills will be made by cutting some green levies that support renewable electricity and abolishing a scheme funding home efficiency upgrades.
Chancellor Rachel Reeves delivers her Budget in the House of Commons this afternoon
She will cut by 75per cent the cost that suppliers have to pay for certificates to show they have sourced electricity from renewable projects.
The government will also abolish charges on bills that fund energy efficiency upgrades for lower income households from April next year.
But they have also increased funding for the warm homes plan by £1.5 billion, presumably to compensate for scrapping the scheme.
While Ms Reeves claims that these changes will trim bills by £150, market analysts put the savings slightly lower.
UK policy think tank Nesta and energy consultancy Cornwall Insight Ltd calculate the saving at closer to £135, Bloomberg reported.
The UK’s fiscal watchdog, the Office for Budget Responsibility (OBR), said transferring the Renewables Obligation (RO) to taxation would mean higher borrowing.
‘The Budget policy to part-fund the RO scheme for three years temporarily shifts a portion of the costs from domestic energy bills to the Exchequer, leading to higher borrowing,’ it said.
But energy bills are still rising even as wholesale power and gas prices are falling due to higher grid and policy costs, which include green levies.
Last week, energy regulator Ofgem said of an increase in bills: ‘The price cap change is driven by government policy costs and operating costs.’
The costs take the price cap to £1,758 a year despite the wholesale energy prices falling by four per cent.
The cap is £190 higher than when Labour came to power last year, despite Mr Miliband’s pre-election pledge to cut bills by £300.
The high cost of energy bills includes the price of subsidising renewable energy which Labour is banking on to provide cheaper energy.
But there has been a backlash to the project, with concerns being raised about the UK’s sky-high energy costs which are the highest in Europe.
The upfront cost of moving from an energy system built on gas to one dominated by renewables is one of the big reasons for high energy costs.
Energy bills are expected to rise by £57 from April according to Cornwall calculations due to higher charges for operating the UK’s energy grids.
Shadow energy secretary Claire Coutinho said energy bills had gone up since Labour came to power due to Ed Miliband’s ‘obsession with Net Zero’.
‘Labour promised to cut energy bills by £300 but they’ve gone up by £200 since they came to power,’ she said.
‘Their meagre bills package saves families less than our Cheap Power Plan, costs taxpayers more, and doesn’t do a single thing to reduce energy bills for businesses.
‘Rachel Reeves is giving with one hand but giving with the other, as taxes go up to pay for the cut in bills. The truth is they’re having to scramble around to find any way to cut bills because they all know Ed Miliband is pushing bills up because of his obsession with Net Zero.’
