‘Excessive’ green tax forces up fuel bills
Energy levies burdening households with higher prices, official review finds
CONSUMERS are paying too much for their energy because of “excessive” green taxes added to bills, a damning Government-commissioned report has found.
A series of “spectacularly bad” decisions by ministers have “unnecessarily burdened” households and businesses with higher green energy subsidies than necessary, according to Prof Dieter Helm, of Oxford University.
The cost of renewable energy – as well as gas, coal and oil – has fallen but the benefits have not been passed on because ministers locked the taxpayer into long-term contracts that overestimated those costs, Prof Helm found.
Green taxes will cost the average household almost £150 from next year, according to energy firms.
Prof Helm said this was “significantly higher than it needs to be” to meet the Government’s objectives of cutting down on the use of fossil fuels and promoting renewable energy.
He was asked to undertake the research after Theresa May, the Prime Minister, vowed to tackle “rip-off ” bills. However, the industry expert placed the blame on the Government’s own policies.
“Significant institutional reform” should be brought in to reduce the Government’s role and allow the market to function efficiently, Prof Helm said. His Cost of Energy Review said: “Each successive intervention layers on new costs and unintended consequences. It should be a central aim of Government to radically simplify the interventions, and to get Government back out of many of its current detailed roles.”
Green energy taxes, which were introduced as part of the 2008 Climate Change Act, have caused controversy ever since because some MPS regard them as “regressive”, penalising those who can least afford them.
There are also divisions over whether the levies are justified, particularly with respect to subsidies for wind farms, with opinion split over whether they are an unnecessary blight on the landscape.
In August the Office for Budget Responsibility warned that the cost of the subsidies would almost treble over the next five years, from £4.6 billion in 2015-16 to £13.5billion in 2021-22.
The costs of “decarbonisation” account for around 20 per cent of typical electricity bills, according to the report. Consumers will have paid well over £100 billion by 2030, and Prof Helm says that “much more decarbonisation could have been achieved for less; costs should be lower, and they should be falling further”.
He said ministers’ forecasts of future energy costs had been far too high, but “many of these excessive costs are locked in for a decade or more, given the contractual and other legal commitments governments have made”.
In particular contracts had been
given to “early stage” wind, solar and biomass companies whose costs had since been hugely undercut by other firms using much more advanced technology, Prof Helm said.
He said energy firms should be forced to declare their profit margins on bills and also called for the cost of existing contracts to be ring-fenced into a “legacy bank” and shown separately. The legacy charge should not be paid by heavy industry, he suggested.
Gareth Stace, director of UK Steel, said a “persistent and sizeable gap” existed between energy costs in Britain and competing markets.
The review is the second major report to criticise government energy policy in recent years after the Competition and Markets Authority dismissed many of the early claims of market abuse made against energy companies. Instead it warned that many policy decisions had harmed competition.
Greg Clark , the Business and Energy Secretary, said: “I am grateful to Professor Helm for his forensic examination. We will now carefully consider his findings.”