A much wider package of support is needed. While temporarily cutting VAT on energy bills would take some much-needed pressure off bills, it will not be enough on its own to help all households. Will cutting VAT on energy bills help to bring down costs? The UK Government’s recent announcement made clear that these levies would be removed ‘temporarily’, with the cost of these important programmes met by the Treasury for the time being. It is vital the programmes these levies support are not scrapped completely, as they play an important role in supporting vulnerable households by delivering energy efficiency measures and investing in renewable energy.
For example, the Energy Company Obligation, which supports insulating homes to cut bills, is funded by green levies. These policies either support investment in renewable energy, help with social issues such as fuel poverty, or both.
‘Green’ levies refer to the social and environmental policy costs that make up part of our energy bills. What is the ‘green levy’ on energy bills? The government could increase the windfall tax on these companies in the future to give more support to households. However, since the windfall tax was announced, price cap estimates have increased dramatically, as have the predictions for future energy company profits to £170bn over the next two years, so the money raised from the tax is now being seen as not enough to help households with rising costs. It’s also being used to help eight million low-income households, who will receive a one-off payment of £650, as well as increased support for pensioners this winter and a one-off payment of £150 for those with disabilities. The previously announced windfall tax on energy producers will help to cover the £400 discount on energy bills for households. What about a windfall tax on the big companies that produce our oil and gas? It’s also essential that the government works to reduce the energy used in our homes by supporting a national programme of energy efficient retrofit. It can do this in several ways, such as further support payments to reflect higher bills (potentially paid for with further windfall taxes on the high profits of oil and gas companies), temporarily cutting VAT on energy bills, an ‘energy furlough scheme’, or temporary renationalisation of energy companies that cannot offer bill reductions. Though it will be difficult for the UK Government to tackle the root causes of high energy bills, it must step in now to ease the pain of high bills for consumers. What could the UK Government do to support people now? The UK does appear to be impacted harder than our European neighbours the average energy price increase in the 12 months to March 2022 for the EU was 41%, while the UK price cap increased by 58% over the same period.
Unlike the UK, the rest of Europe gets significantly more gas from Russia and is therefore more at risk of reduced energy supplies. The UK is not the only country in Europe struggling with skyrocketing energy prices. Is the UK being hit harder than other European countries?
It’s difficult to know exactly when energy bills will go down, as international gas prices are continuing to fluctuate. Some estimates suggest that energy bills could remain high until 2024. Russia is one of the world’s largest producers of oil and gas, supplying the EU with 40% of its gas in 2021. This is largely due to an increase in wholesale gas prices, caused by higher demand for gas after Covid-19 restrictions relaxed, but also because of Russia’s invasion of Ukraine, which has threatened supplies and driven up prices. Our energy expert and head of policy, Stew Horne, answers the questions everyone’s asking about their energy bills right now. Your bills might be higher or lower than this if you use more or less energy than the typical household. This is almost £1,000 less than typical bills would have risen to under the cap, but this will still be more than the price cap of £1,971 set in April. But, the UK Government has now frozen typical energy bills at £2,500 from October for the next two years under the Energy Price Guarantee scheme. The cap was due to rise again by 80% from 1 October 2022 for 24 million people. The energy price cap is set by Ofgem, and it limits the maximum amount energy suppliers can charge you for each unit of energy you use if you live in England, Scotland and Wales.
Everybody has bills to pay update#
After the announcement by the UK Government on 17 October 2022, the Energy Price Guarantee will only remain in place for all households until April 2023. We’re waiting on further details on what support may be available after this date and will update our website as soon as we can.
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