The government could scrap a green levy which adds £153 to the average energy bill to ease the cost of living crisis facing households.
Downing Street is weighing up whether the levies could be phased out or dropped ahead of this winter, according to The Telegraph.
The levy is used to fund renewable energy schemes – a key feature of the government’s recently unveiled supply security strategy.
However, the levy has been a source of backbench ire during the escalating energy crisis, with 20 Tory MPs and peers writing to the Prime Minister to scrap green taxes on energy bills earlier this year.
Chancellor Rishi Sunak has provided households with an up to £350 annual saving on household energy bills, through a £9bn rebate scheme and the scrapping of council tax for households in bands A-D.
But, he has maintained the green levies – which have continued under successive Tory Prime Ministers since David Cameron.
Nevertheless, a Downing Street source told the newspaper the government understood the strength of feeling in the party, making scrapping the levy an “attractive option.”
It is understood scrapping the levies would be “one of several options” considered by the government this autumn.
Price cap set for further spike in October
The price cap, which spiked 54 per cent this month to an eye-watering £1,971 per year, is likely to rise again October.
Energy specialists Cornwall Insight predict a further 34 per cent increase to £2,599 per year when the cap is updated later this year.
Meanwhile, the Office for Budget Responsibility published analysis of wholesale oil and gas prices suggesting bills would increase by as much as 40 per cent.
In either scenario, this would mean price-capped energy bills would have more than doubled in less than 12 months.
While the possibility of scrapping levies would be attractive to large swathes of the Conservative Party, the proposal has been criticised by environmental think tank Green Alliance.
Joe Tetlow, senior policy adviser at Green Alliance, told City AM: “Green levies are vital to fund clean energy and insulation schemes for poor households. It’s also basically impossible, given contractual obligations. The better option is taking the levies off consumer bills and into government spending. Such a move could unite backbench Conservative MPs and protect this crucial funding mechanism.”
This outlook was supported EON chief executive Michael Lewis, who told the Business, Energy and Industrial Strategy committee that it would make sense to remove environmental levies and place the costs into general taxation.
However, Andy Mayer, energy analyst for the Institute of Economic Affairs argued green levies reflected the current set up of the UK’s energy market.
He was cautiously in favour of scrapping the levy, but suggested more had to be done to reform policies which had driven up costs.
Speaking to City A.M., he said: “The environmental and social charges turned Britain’s cheap and efficient energy market into a subsidy scheme for poor quality renewables and retail energy companies into welfare providers. Our energy bills today are riddled with the expensive and ineffective consequences. An affordable low carbon transition requires less intervention, with competitive carbon taxation, not picking winners nor banning technologies, letting markets work to deliver innovation, and welfare work to deliver welfare.”