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UK ministers should take urgent steps to reduce the stress on household finances from soaring energy prices by removing costly green levies from consumer electricity bills, one of Britain’s biggest energy suppliers has said.
Michael Lewis, chief executive of Eon UK, said levies that fund renewable energy subsidy schemes and make up a quarter of electricity bills, should instead be funded via general taxation.
Removing such additional costs, which also include social policies such as discounts for vulnerable households, was a “short-term imperative” to help consumers during what was “going to be a very challenging winter”, as wholesale gas and electricity prices spiral to unprecedented levels, Lewis said.
The energy industry veteran, whose company serves 5.6m households and businesses, stressed recent price rises were driven wholly by market dynamics but argued that the levies increase bills “unnecessarily”, adding: “It’s effectively a regressive tax and . . . would be better in the overall tax base.”
British Gas-owner Centrica said it backed its rival’s call to “move policy costs to general taxation”.
Utilities are braced for a political and customer backlash when energy bills for 15m households rise by at least 12 per cent at the start of October, after Britain’s energy regulator, Ofgem, raised the level of the country’s two price caps last month in response to higher wholesale gas prices.
Analysts are forecasting further significant rises early next year when the caps are next reviewed. New fixed price energy deals in Britain have already increased by hundreds of pounds to reflect the wholesale market turmoil, which is making it difficult for households to find cheaper tariffs.
Surging fuel prices are having ramifications across Europe. The Spanish government earlier this week announced a tax cut on household bills and a raid on energy companies’ profits in response to soaring prices.
Lewis argued that a similar move in the UK would only damage the sector further, with the surge in energy prices already hurting some suppliers. Five smaller energy companies have gone bust since the start of August, hit by the turmoil in the markets, due to inadequate hedging strategies or weak balance sheets.
“Since the [main] price cap was introduced [in 2019], most of the industry players have been lossmaking,” Lewis said. “I don’t think there is a pot of gold there for government to raid.”
Wholesale price increases have been driven by low gas stocks in Europe following prolonged cold weather last winter. Lower supplies from Russia and tough competition for shipments of liquefied natural gas (LNG) from Asia has limited the rebuilding of stocks in storage facilities over the summer.
This has had a knock-on effect on power prices, particularly in markets such as the UK that remain heavily reliant on gas for electricity generation. Low wind speeds and outages at some power stations and the fire this week that damaged Britain’s main subsea electricity cable with France, have also pushed up prices.
Energy companies and environmentalists have long questioned why environmental and social policy costs are put on electricity bills rather than gas bills, where the equivalent levy is just 2.5 per cent.
They point out that the government is encouraging households to use more electricity in its push to cut emissions by adopting low carbon technologies such as electric vehicles and heat pumps.
Lewis said in the longer-term ministers should introduce a carbon tax on gas. He also urged the government to tackle the energy efficiency of UK homes, which are among the leakiest in Europe.
The UK government did not directly respond to Lewis’s call but insisted the price caps would “protect millions of customers this winter from sudden increases in global gas prices”, given they are reviewed only every six months. Around 2.2m low income households would receive a £140 discount on their bills via a scheme known as the Warm Home Discount, it added.