Chancellor Rachel Reeves has unveiled a significant shift in energy policy, confirming that average household energy bills will fall by £150 per year starting from April. However, this reduction comes with a notable catch, as the government will transfer some costs from energy bills to general taxation.
The End of the 'Failed' Eco Scheme
In her Commons statement, Ms Reeves announced the scrapping of the Energy Company Obligation (ECO) scheme introduced by the previous Conservative government. This scheme required energy companies to fund insulation and new heating systems for low-income households.
The Chancellor declared the scheme a failure, stating: 'It costs households £1.7 billion annually on their bills, and for 97% of families in fuel poverty, the scheme has cost them more than it has saved.'
To protect vulnerable households, Ms Reeves simultaneously increased funding for the Warm Homes Plan by £1.5 billion, ensuring those most affected by the ECO scheme's cancellation won't lose out.
The Taxpayer Takes on Green Costs
In what opposition critics have called a 'sleight of hand,' the government will achieve part of the bill reduction by transferring costs for green energy schemes to general taxation. Additionally, the Chancellor will cut by 75% the cost suppliers pay for renewable electricity certificates under the Renewables Obligation.
These costs will be temporarily covered by taxpayers for the next three years before responsibility returns to energy companies. The Office for Budget Responsibility has warned that this approach will lead to higher government borrowing.
Reality Check on Energy Bill Promises
Despite Energy Secretary Ed Miliband's pre-election pledge to reduce energy bills by £300 over this parliament, the current reality paints a different picture. Energy charges remain £190 higher than when Labour came to power.
Without government intervention, the Ofgem price cap was projected to reach £1,758 annually in January – approximately 12% higher than the £1,568 level when Labour took office.
Independent analysis from think-tank Nesta and energy consultancy Cornwall Insight suggests the actual saving might be closer to £135 rather than the government's claimed £150.
Conservative energy spokesperson Claire Coutinho criticised the move, stating: 'This is a sleight of hand from Rachel Reeves, who is giving with one hand but taking with the other as taxes go up to pay for the cut in bills – robbing Peter to pay Peter.'
The debate continues over whether shifting costs from energy bills to general taxation represents genuine savings or merely redistributes the financial burden across different parts of the economy.
