The UK’s largest energy suppliers have announced a rollback of their planned price increases, honouring a pledge to pass on savings from the government’s shake-up of social and environmental levies on bills.
The reform of the levies is part of a government response to Ed Miliband’s call for a 20-month freeze on fuel bills, which catapulted energy costs to the top of the political agenda.
The issue took on new urgency after five of the UK’s largest energy suppliers announced price increases well ahead of inflation, inflaming an increasingly impassioned debate about the cost of living.
The government will now hope it has drawn the sting out of the debate by reducing the cost of social levies that the energy companies claim is a key cause of rising bills.
Ed Davey, energy secretary, said he expected the average household energy bill to be £50 lower than it would otherwise have been next year thanks to the changes announced on Monday.
But he also acknowledged that fuel bills could still rise if the suppliers’ wholesale costs increase.
Mr Miliband, Labour leader, dismissed the government’s measures as “smoke and mirrors”, saying only he would deliver a “real price freeze and action to reset the market” and ensure companies do not overcharge.
Under the proposals, the government will shift funding for the Warm Home Discount, a scheme that delivers discounts on electricity bills for the elderly and some low-income households, from customer bills to general taxation. This would save the average customer £12 on their bill for the next two years.
The government also said it was reducing the cost of the Energy Company Obligation, a scheme to insulate homes that is paid for through household bills.
The deadline for meeting Eco targets will be extended from March 2015 to March 2017, and its focus will be shifted from expensive measures such as solid wall insulation towards replacing or repairing boilers in low income households. Ministers say the changes would result in £30-£35 off bills on average next year.
The government also said that moves to cut network charges would allow for a further reduction of about £5 on electricity bills.
But there was some criticism of the government’s moves, particularly from Conservative MPs in rural constituencies where fuel poverty is rife. One MP said the changes to Eco were “bad news” for off-grid homes in rural areas, because they reduced the scheme’s focus on insulating hard-to-treat solid walls.
The big energy suppliers quickly responded by saying they would roll back some of their planned price increases. Centrica, owner of British Gas, said its average annual bill will fall £53 to £1,229 – though that represents less than half the £123 price hike that went into force last month.
SSE said it planned to pass on savings of about 4 per cent before the end of March, or about £50 for a typical dual fuel customer.
RWE Npower said it was still calculating how much it would reduce bills. But it pledged that it would not increase energy prices before spring 2015, unless wholesale energy costs or network charges increase.
Eon, the only big supplier not to announce a price rise over the past six weeks, said it would “have to take action on bills in the near future” due to other rising costs, but said any increases would take all of the government’s announced changes into account.
It said that the changes meant it would not expect to have to raise prices as a result of social or environmental obligations in the next 18 months. However, it said there was still a risk that increases in network charges or wholesale energy costs would force it to make a price increase.
EDF Energy, another big six supplier, had anticipated the changes to Eco and as a result only raised its prices by 3.9 per cent – much less than its rivals. It said in a statement that the shake-up announced on Monday had “validated” its approach.
Additional reporting by Jim Pickard
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