Miliband plots 15% net zero tax on gas bills

Telegraph

3 days ago

Ed Miliband is considering plans to overhaul green levies, which experts have warned would push up the average gas bill by £120 a year.
The Energy Secretary is looking at removing the taxes that are applied to electricity as part of his plans to encourage more people to buy heat pumps.
But he has admitted Rachel Reeves, the Chancellor, would not cover the £4.8 billion-a-year cost, meaning the charges would likely have to be shifted on to gas bills.
Ministers and Ofgem, the industry regulator, have spoken positively about the plans, which experts calculate would add 15 per cent to the cost of gas.
Mr Miliband's department insisted that no final decision had been taken and dismissed the projections of how much bills would rise as 'speculation'.
Under the proposals, subsidies for pensioners and households on benefits would be increased to cushion them from the impact of higher bills.
Officials are likely to argue that the average household, which uses a mix of gas and electricity, would face no increase in overall bills as a result.
That is because the levies would simply be shifted from their electric bill to their gas bill, with the cost balancing itself out overall.
Homes with heat pumps would benefit most, saving £420 a year, but families who are heavily reliant on gas boilers and cookers could end up worse off.
The plans emerged in a report drawn up by the Commons net zero committee, which is chaired by Bill Esterson, a Labour MP and former shadow minister.
Backbenchers asked Mr Miliband and Miatta Fahnbulleh, his deputy, about calls from some campaigners to 'rebalance' the cost of gas and electricity.
In transcripts released by the committee, the Energy Secretary said that there was a 'principled case' for removing levies from electricity.
But he warned that the Treasury was unlikely to agree to picking up the cost of doing so, which has been projected at some £4.8 billion a year.
'There is a world where you transfer all the levies to public expenditure. No doubt all of us in our fantasy world would like that to happen,' he told MPs.
'It is billions of pounds of costs. I do not think it will surprise the Committee if I say that is unlikely to happen in the short term, given the fiscal situation that we face.'
'We need to proceed cautiously'
Mr Miliband acknowledged that he was looking at proposals to transfer the levies to gas instead and that doing so would push up bills.
He said that officials at his department were 'working through' where the costs would fall and how to mitigate them for the poorest households.
'You have 100 per cent of people, more or less, on electricity, and about 80 per cent of people on gas, so if you are transferring the 100 per cent to the 80 per cent, you then have a potential bills effect,' he said.
'I think the principled case for these levies not falling on electricity is clear. The practical solution to make it happen is more complicated, and in a world where we need to protect fairness. We need to proceed cautiously.'
Ms Fahnbulleh, the Minister for Energy Consumers, said that the high price of electricity was pushing up the cost of running heat pumps.
'That is a problem for us because we need the running cost to be as cheap as, if not cheaper than, the cost of a gas boiler,' she told the committee.
'No doubt, when you speak to experts, they will all say that rebalancing needs to happen.'
Jonathan Brearley, chief executive of the energy watchdog Ofgem, said there was a 'rationality' for shifting levies away from electricity.
He said that it was 'the right thing to do from the perspective of getting to net zero' but that inevitably it would result in 'a lot of people losing out'.
The revelations come after the climate change committee, which oversees net zero targets, told Mr Miliband to remove green levies from electricity bills.
According to Nesta, a charity which promotes the uptake of heat pumps, the taxes make up 16 per cent of the cost of electricity and 5.5 per cent for gas.
That means they add £140 to the typical electricity bill and £50 to the average gas bill.
Mike Foster, chief executive of the Energy and Utilities Alliance, said Mr Miliband should be 'cautious' about adopting the proposals.
'We have seen in the debate around the Winter Fuel Allowance that changing household energy bills is politically risky,' he said.
'The political optics of seeing your gas bill increase by 15 per cent, for the 25 million households that use gas, to make using a heat pump that costs £13,000 to fit, £120 a year cheaper to run, may be a bridge too far at this time.'
A spokesman for the Department of Energy Security and Net Zero said: 'This is speculation – no decisions have been made.
'We will repair our retail energy market and deliver real change, to ensure people have the best possible support to choose more affordable, smarter, clean energy that is right for them.'
'As long as Britain remains exposed to the roller-coaster of global fossil fuel markets, we will be vulnerable to energy price spikes beyond our control.
'That's why our clean energy mission is the best route to protect consumers and bring down bills for good. We will set out further details in due course.'