Millions of households across Britain are set for a welcome financial reprieve, with energy bills due to fall by an average of £150 per year.
In a significant move to address the cost of living, Chancellor Rachel Reeves has confirmed the abolition of two major green levies that are currently added to energy bills. The decision is part of a broader strategy to ease the financial burden on cash-strapped families.
What Levies Are Being Scrapped?
The most substantial change is the ditching of the Energy Company Obligation (ECO), a Tory-era home insulation scheme. This scheme has been heavily criticised and currently adds around £43 to the average annual bill. It will be officially terminated in April 2025.
Furthermore, official documents from the Office for Budget Responsibility (OBR) reveal that the Renewables Obligation will be partially and temporarily removed. This levy currently contributes approximately £90 to the average combined gas and electricity bill. This temporary measure is projected to cost the Treasury £3 billion next year and a further £2 billion annually until 2028/29.
Broader Impact on Households and Inflation
This intervention comes at a critical time. From April 1st, the energy regulator Ofgem has confirmed its price cap will rise slightly to £1,753 a year. Ofgem stated this increase is solely due to government policy costs, not wholesale energy prices.
Without the Chancellor's action, experts had predicted an even higher bill increase. The OBR forecasts that these lower energy bills will also help to curb inflation, estimating it will average 3.5% this year before falling to 2.5%.
However, the Chancellor opted not to remove the 5% rate of VAT on energy bills, a measure that would have saved households an additional £84 on average.
Controversy and Criticism of the Scrapped Scheme
The decision to scrap the ECO scheme follows a damning National Audit Office (NAO) report. The investigation found that tens of thousands of UK homes fitted with energy efficiency measures under the scheme developed "major" faults such as damp and mould.
The NAO warned that some problems were so severe they posed "immediate health and safety risks." The report also uncovered issues with suspected fraud, with up to 16,500 false claims potentially totalling £165 million, a situation campaigners blame on exploitation by "cowboy" tradespeople.
The move has received a mixed response. Ami McCarthy, head of politics at Greenpeace UK, acknowledged that shifting green levies into general taxation was "great news for billpayers." However, she strongly criticised the decision to cut the insulation programme, warning it "risks leaving millions of households in fuel poverty, trapped in cold, damp homes." She argued the scheme needed reform, not outright scrapping.
