The short version
- Over 120 organizations have signed a letter demanding the government absorb costs currently passed to consumers via energy bills.
- Signatories argue that shifting these levies could reduce household expenses by £250 and cut business electricity prices by 20%.
- The request comes as rising wholesale prices and geopolitical tensions push average annual bills toward record highs.
A significant coalition comprising more than 120 organizations, including major corporations, trade bodies, and charitable groups, has formally requested that the UK government remove specific policy-related charges from consumer energy bills. The group, which includes Energy UK, the Confederation of British Industry, Age UK, and End Fuel Poverty, submitted a letter to Chancellor John Healey urging him to address these costs in his upcoming budget statement scheduled for October 28. The central argument is that current billing structures effectively tax electricity consumption, thereby hindering economic growth and exacerbating the cost-of-living crisis.
The organizations propose that the government should directly fund the policies currently supported by levies on household bills, which account for approximately 10% of total energy costs. Specifically, they call for the elimination of charges related to the warm homes discount scheme and the feed-in tariff program, a subsidy for renewable energy generation that officially closed in 2019 but continues to pay out to existing contract holders. Additionally, the coalition seeks an end to levies designed to support nuclear power plant construction. They argue that these specific funding mechanisms should be scrapped entirely rather than transferred to general taxation.
Proponents of this shift estimate that moving these costs off consumer bills could reduce the average household energy bill by as much as £250 per year. This figure includes savings from previous adjustments made by former Chancellor Rachel Reeves, who shifted 75% of green energy scheme funding to government taxation last year. For businesses, the potential impact is even more pronounced, with signatories estimating a 20% reduction in electricity prices if these levies are removed. Ed Matthew, director of the UK programme at thinktank E3G, described the current system as active sabotage of efforts to lower energy costs, asserting that credible economic planning requires removing these taxes from bills and moving them to the exchequer.
The urgency of this request is underscored by recent market volatility. Geopolitical tensions, specifically the outbreak of conflict involving Iran, have driven up global gas and electricity prices. Consequently, households are facing their highest energy charges in three years during the upcoming winter season. Energy consultant Cornwall Insight has forecast that Ofgem, the UK’s energy regulator, will likely increase its quarterly price cap again in January. This adjustment would push the average annual household bill to £1,872, further straining consumer budgets and raising concerns about fuel poverty.
The coalition highlights a stark contrast between current pricing and historical levels, noting that UK energy bills are now 70% higher than they were in 2021. This surge has placed considerable pressure on the government, which made a pre-election promise in 2024 to cut energy bills by £300 per year by 2030. Critics argue that the current trajectory makes this target increasingly difficult to achieve without structural changes to how energy policies are funded. The letter warns that high energy costs are not merely a consumer issue but a significant constraint on the broader economy, driving business closures, job losses, and deterring new investment in the UK.
Previous attempts to mitigate these costs have had limited effect. In July, Business Secretary Andy Burnham announced a temporary reduction in value-added tax on domestic energy bills, effective from October. This measure is expected to provide an average saving of £45 per household but is currently set to expire in April. While this offers short-term relief, it does not address the underlying structural costs embedded in the bills. The coalition argues that without removing the policy levies, any temporary tax cuts will be insufficient to tackle the root causes of high energy prices.
Dhara Vyas, chief executive of Energy UK, emphasized that high electricity prices negatively impact all sectors of society. She stated that taking levies off bills would demonstrate serious government commitment to tackling fuel poverty and inflation while fostering economic growth. The coalition contends that cheaper electricity would have an outsized positive impact across the economy, enabling reindustrialization and improving competitiveness. By shifting the financial burden from consumers and businesses to the state, they believe the government can create a more stable and affordable energy market.
As Chancellor Healey prepares his first budget, the pressure to address these structural issues is mounting. The letter represents a unified front from diverse stakeholders who view the current billing model as unsustainable. Whether the government chooses to absorb these costs through general taxation or explore alternative funding mechanisms remains to be seen. However, the coalition’s message is clear: maintaining the status quo risks further economic damage and fails to meet the government’s own affordability targets.
Sources behind this briefing
Go to the original reporting
- The Guardian World↗UK chancellor urged to remove ‘hidden taxes’ from energy bills
