David Cameron plans to halve the green levies in energy bills while clearing the way for a windfall tax on suppliers before the next election.
ScottishPower became the latest of the leading energy companies to increase prices yesterday, warning its 2.2 million customers of above-inflation rises that will add £113 to the average dual fuel bill.
Just days after Sir John Major said that millions of people would face a choice between eating and heating this winter, public health officials said that there were “too many avoidable deaths” from the cold, adding further to the pressure for government action.
The Prime Minister, who was accused by Liberal Democrats of a “panicky U-turn” for his surprise announcement on Wednesday that he would “roll back” green taxes, has earmarked four levies on energy companies for abolition. They will be discussed with Liberal Democrat ministers before an announcement in the Autumn Statement on December 4, according to senior Conservatives.
Nick Clegg, the Deputy Prime Minister and Liberal Democrat leader, struck a more conciliatory note yesterday, suggesting that at least one levy — the Warm Homes Discount — could be removed from bills and funded by government revenue. The £135-a-year rebate for poorer pensioners adds £11 to the cost of an average household energy bill.
Another levy, the Energy Companies Obligation, which passes the costs of insulating the homes of poorer consumers to large energy companies, could be amended to reduce the burden on suppliers. Both levies have already been identified by Tory and Liberal Democrat ministers seeking a response to Ed Miliband’s promise to freeze energy bills for 20 months after a Labour victory.
A Conservative source also said that the taxpayer may be asked to meet some of the costs of two subsidies for renewable energy — the renewable obligation and feed-in tariff, which together add around £37 to the average bill — when coalition talks begin in earnest next week.
“It’s actually quite easy to get up to the £50 mark if the welfare elements are moved out of the bill and there is an acceptance that the renewable obligations are shared,” an informed industry source said.
The Conservatives are hoping that a substantial reduction in average bills now will help them to turn the pressure over future energy costs onto the Labour Party. Mr Miliband has signed up to a more radical environmental commitment than the Government — a pledge that one Tory claimed last night would add an extra £125 to average bills by 2020.
For now, however, the attention is on the cost of keeping warm this winter — and the behaviour of the leading suppliers. ScottishPower’s price rise comes just days after it was heavily fined for mis-selling. In line with the three other big companies that have already announced above-inflation increases, it blamed “compulsory schemes to reduce carbon emissions and improving energy efficiency in homes”.
Speaking to small businesses in Central London yesterday, Mr Miliband said that Mr Clegg had revealed the Government’s intention to shift the burden from “ordinary bill payers like you to ordinary taxpayers like you”.
The Labour leader added: “Governments have always looked at this balance, but this Government wants you to pick up the tab for its failure to stand up to the energy companies. That won’t offer the real help that business and families need.
“They propose a panicked wheeze paid for by taxpayers. We offer a real freeze paid for by the big energy companies.”
Privately, however, senior Labour figures are well aware that Mr Cameron is preparing what one described as an “elephant trap” for Mr Miliband.
They suspect the Prime Minister will seek to tie a package of short-term relief for energy consumers to a commitment to scale back existing green levies in the future.
The announcement next week of a competition review opens the way to the possibility that some of the cash used to slash bills in the short term is recouped from a windfall tax in the future.
The option was floated by Sir John earlier this week but rejected by a No 10 spokesman almost immediately.
However, a senior Government source conceded that “action would be taken” if the inquiry by Ofgem, the Office for Fair Trading and the Competition and Markets Authority found evidence of excess profits next spring.
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