Hidden tax on energy bills set to double
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, warns uSwitch.com, the independent price comparison and switching service.
Households currently spend an average £1,194 a year on energy with £84 or 7% 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% 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 already said to be considering an additional levy on electricity bills that could add a further £10 - £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% of the current average household bill.
But this could actually be the thin end of a wedge. Ernst & Young calculates that investment in Britain's energy supplies will cost over £230 billion, potentially adding £548 onto household energy bills over the next 15 years. While much of this cost can be expected to be recouped through higher energy prices, it could also have an impact on the amount being paid in levies. In fact, some of the levies already being charged on household energy bills are going towards meeting this investment cost.
Understandably, consumers are concerned. According to uSwitch.com research 44% of consumers say that 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%) say that affordable energy has to be the priority.
Three in ten consumers (30%) say that the cost should be shared across Government, industry, consumers and businesses. A further 14% say that it should be applied as a proportionate charge on energy bills so that high users pay more, while those who consume less pay less.
However, there is currently 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. Rather than offering an incentive for cutting consumption, the levies will serve as a penalty.
Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "Environmental levies are going to account for a growing and substantial part of our bills and will in turn 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.
"If the levies are applied proportionately they will act as an incentive for households to cut their energy consumption. If not, then the industry will be sending out a very mixed message to consumers. Unfortunately, there is already a precedent here with low energy users generally receiving a smaller percentage price cut than high users earlier this year. Safeguards will also need to be put in place so that people who consume high amounts of energy for health reasons are helped rather than penalised.
"The important thing though is for consumers 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. This will help to mitigate the impact on our bills. I would also urge consumers to speak to their supplier to find out what support they can offer - part of the tax on our bills goes towards funding suppliers' energy efficiency programmes and they may qualify for help."