Climate change 'taxes' pushing up energy bills

HOUSEHOLD energy prices may have stopped their climb upwards but behind the scenes something else has been going on which is pushing our power bills higher. And it looks set to get far worse.

Households are paying 84 a year in "hidden taxes" on their energy bills to help meet the cost of combating climate change. But mounting pressure could see these taxes more than double to 176 a year within the next decade.

The average household energy bill is currently 1,194 a year, with 84 or 7 per cent of this going towards environmental levies. These include the EU Emissions Trading Scheme (24), Carbon Emissions Reduction Target (45), Community Energy Saving Programme (3) and the Renewables Obligation (12). However, policies launched under the previous government are expected to add a further 6 per cent in levies over the next decade. This will cost consumers an extra 72 a year on their energy bills, resulting in the average household paying a whopping 156 a year in environmental "taxes".

It doesn't end there though. The Treasury is said to be considering an additional levy on electricity bills that could add a further 10 to 20 to bills. If this happens consumers could see the "hidden tax" on their energy bills more than double within the next decade to 176, accounting for 15 per cent of the current average household bill.

Alarm bells are ringing. Energy affordability in Britain is already a big concern. According to recent uSwitch.com research, 44 per cent of consumers say the commitment to cutting carbon emissions and moving to greener energy sources has to be balanced with the impact on people's bills, while almost a quarter (22 per cent) say that affordable energy has to be the priority.

But this isn't the biggest cause of concern. Last week the Fuel Poverty Advisory Group raised the spectre of the fuel poor and what the drive to go green could mean for the swelling ranks of families forced to cut back on their heating. It reports that fuel poverty levels have almost quadrupled in six years, with nearly five million households now affected. To put that in context, one in five households today is blighted by fuel poverty. Worryingly, the group says that the fuel poor are being hit hard by the cost of climate change policies and it describes this policy as "regressive" and having a "disproportionate impact on those on low incomes".

And it is right. Applying these charges across all household energy bills irrespective of consumption or ability to pay means that people who are using less energy or who are on lower incomes are being hit harder than most. This makes it an unfair tax and suggests that in its haste to drive forward climate change policies the previous government and those charged with taking forward its policies, such as energy industry regulator Ofgem, did not think it through.

At the moment there is no clarity on how these "taxes" are applied. If suppliers end up charging them as a flat fee, people consuming less energy will find themselves paying proportionately more.

The time to have this debate is now, because we are on the cusp of seeing these levies potentially rocket. Ernst & Young calculates that investment in Britain's energy supplies will cost more than 230 billion, potentially adding 548 to household energy bills over the next 15 years.

What is clear today is that environmental levies are going to account for a growing and substantial part of our bills and will play a growing and substantial part in pushing the cost of our energy up. If consumers are to be expected to meet these costs then there has to be clarity over what these "hidden taxes" are for, a cap set on how much consumers will end up paying and transparency over how the levies are being applied. Safeguards need to be put in place to protect the sick, vulnerable and poor.

The important thing, though, is for us all to grasp the longer-term implications of these levies: the only way household energy bills are going is up. It is crucial that we now all take steps to become more energy-efficient and to ensure that we are paying the lowest possible price for our energy.

Ann Robinson is director of consumer policy at uSwitch.com