Net zero drive will add £120 to energy bills

Commons backlash over £3.5billion scheme backing hydrogen production

HOUSEHOLD energy bills are expected to rise by nearly £120 a year to fund the development of hydrogen gas under the Government’s net zero plans.

No10 is backing the production of low-carbon hydrogen in a scheme expected to cost £3.5billion a year between 2030 and 2040.

Costs could be added to household bills from 2025 on top of subsidies for other green energy such as wind farms, under provisions in the new Energy Bill. The plan, which is part of the Government’s efforts to meet its target of net zero carbon emissions by 2050, is facing opposition from as many as 50 MPS and is expected to be challenged in the Commons. The extra levy could add £118 to annual household bills, a 10 per cent increase on dual fuel bills, according to analysis from Onward, a centreright think tank.

It would apply despite the fact that hydrogen is expected to play only a limited role in home heating, with the Government expecting heat pumps to be the main replacement for gas boilers. Hydrogen would be mainly used as an energy source for industry.

The news comes as water bills are expected to rise significantly to pay for resolving the sewage crisis and amid broader concern about the burden of net zero costs on households.

Earlier this month, Citizens Advice warned that the average £15,000 cost of retrofitting homes to go green would be unmanageable for most homeowners.

Conservative backbenchers are expected to table amendments to the Energy Bill in an attempt to force Rishi Sunak into an about-turn.

Some could also support a Labour amendment that would strip ministers of the power to apply the levy to household bills.

Craig Mackinlay, chairman of the Net Zero Scrutiny Group, said that many Tory MPS were opposed to No10’s “socialist energy agenda”.

“The thought of more levies to try and pick winners that are unproven and in my view unsound just continues what we’ve seen in the whole field of energy policy, which seems more reminiscent of the 1950s Soviet Union that we used to laugh at,” he said.

“We need markets back in control of energy policy because governments are making a complete mess of it. I sense there is concern about all these kinds of policies among colleagues.”

Sir John Redwood, a former policy chief under Margaret Thatcher, added: “The last thing we want is another government-imposed hike in the price of energy. UK households are suffering a hit to their living standards and business is being driven out of Britain. We need a rollback of taxes and subsidies on energy and we need a big expansion of domestic capacity.

“There are a number of Conservative MPS who do not think the policy embedded in the Bill is one that’s good for the country or one that’s going to work because it’s more of the same – more interference and higher taxes.”

Onward has proposed funding the development of hydrogen with carbon taxes on heavy industry.

Jack Richardson, head of energy and climate at Onward, said: “It would be unfair to ask households that won’t benefit from hydrogen directly to pay for it.

‘We need markets back in control of energy policy because governments are making a mess of it’

The Government should think again.”

More than 40 per cent of households would not be willing to pay any levy to fund hydrogen production, polling for Onward found, with a further quarter willing to pay up to £10.

“Even if the economic case for the levy stacks up, the political and moral case is weak,” the think tank said.

The Government is backing the development of 10GW of low-carbon hydrogen production capacity by 2030, which it plans to pay for through a similar funding scheme as used for the onshore wind industry.

A Department for Energy Security and Net Zero spokesman said: “Our plans to power up Britain will ensure the availability of cleaner, cheaper and more secure energy sources – including hydrogen – which will help to make sure people’s energy bills are affordable.

“That priority is at the heart of our work in developing the hydrogen levy.”

FAMILIES face a £1,000 increase in their annual shopping bills as food overtakes energy as main force behind the cost of living crisis.

Rising food and drink prices means grocery bills will on average be £1,000 above 2020 levels by July, according to calculations by the Resolution Foundation.

At the same time, energy bills are expected to fall in the coming months as gas prices come down and the Ofgem price cap is lowered. As a result, food costs will replace energy as the biggest driver of inflation.

Some 16million households, 56 per cent of families, will experience a bigger increase in food costs than energy costs from this summer, the foundation said.

Lalitha Try, an economist at the Resolution Foundation, said: “The food price shock to family finances is set to overtake that from energy bills. What remains consistent is that those on low to middle incomes are worst affected.”

Food prices jumped by a fifth in the year to March, marking the biggest leap in 45 years.

Andrew Bailey, the Governor of the Bank of England, has said rapidly rising food prices are the biggest cause of Britain’s persistently high inflation rate.

Supermarkets are under growing pressure to lower prices, with critics including Sir Ed Davey, the Liberal Democrat leader, accusing them of profiteering. Grocers argue they are simply passing on rising costs from higher wages, fertiliser costs and energy prices.

Earlier this week supermarket bosses were summoned to Downing Street to explain why prices have risen so fast.

Food prices now make up a larger share of a household’s budget, with most families spending 13 per cent of their monthly incomes on groceries compared with 5 per cent on energy.

Essentials including milk, eggs and vegetable oil have increased by some of the largest amounts in the past year.

The Resolution Foundation warned that the poorest households cannot trade down to cheaper products and are being forced to eat less in the face of soaring costs. The think tank said many of the poorest families had already cut back on how much they eat and spend on essentials.

Around one in five Britons has said they are eating less or skipping meals because of a lack of funds.

Ms Try said: “The cost of living crisis isn’t ending, it’s just entering a new phase. Everyone realises food prices are rising, but it’s less clear that the scale of the increases has been understood in Westminster.”

In recent weeks, supermarkets have cut prices on some everyday items, including milk and bread. However, prices still remain above pre-crisis levels.

Bad weather in Spain and North Africa pushed up the price of fruit and vegetables including tomatoes earlier this year, forcing some supermarkets to ration supplies.

Inflation remains at a 40-year high of 10.1 per cent but economists expect figures released next week to show it has finally fallen back into single digits.