The government is coming under pressure from energy firms to make a second stage of cuts to green levies or face gas and electricity price rises in the months before the 2015 election.
Ministers agreed to scale back the Energy Company Obligation (Eco) scheme that cuts the fuel usage of poor households, while funding another subsidy out of taxation, reducing average energy bills by £50. The big six energy firms all said they would pass on the £50 cut to consumers, and most suggested they would be able to hold off from raising prices for the whole of 2014 without further rises in wholesale or network costs.
But industry sources say the companies are still in negotiations with officials on further possible ways of bringing down gas and electricity bills, with one executive in a big six firm saying the £50 cut is “very much seen as a first step”.
Among various targets for companies are further cuts to Eco, another look at the £11bn smart metering scheme and scrapping the carbon floor price – a tax on emissions that makes the cost of nuclear and renewable energy comparatively cheaper.
Tory MP Tim Yeo, chairman of the Commons energy committee, warned of the danger of having “opened the door” to cutting environmental programmes, arguing the government is looking in the wrong place in its drive to cut bills.
He said green and social levies only make up 9% of the bill and ministers should instead consider the role of the monopoly network firms, such as National Grid, whose charges now make up 20% of the total. Yeo also backed Labour’s call for the energy companies, which currently both generate energy and supply it to homes and businesses, to be split up as the only way to banish the suspicion that firms are profiteering. “I don’t think we’ll ever rebuild trust in this industry until we have separation of these functions,” he said. “[The government] may be not be persuaded because of the resistance of the industry and because it is a policy the Labour party are starting to look at. But I take the view this is a very long-term industry and if we think something is right, we should do it anyway.”