Power price rises cut by levy move

British GasHouseholds are to be spared the full force of recent bill hikes after power firms pledged to pass on savings from a Government shake-up of energy levies.

British Gas will cut dual-fuel bills by an average of £53 from January 1, but this is still less than half the increase imposed on customers last month.%VIRTUAL-SkimlinksPromo%
Other energy firms made similar announcements, with SSE expecting a dual-fuel saving of around 4% before the end of March, equivalent to around £50. Npower does not plan to increase energy prices before spring 2015, unless there are increases in wholesale costs or network charges.

The moves come after Chancellor George Osborne confirmed that the costs of some energy-efficiency and social schemes will be rolled back in this week's Autumn Statement.

It also marks a concerted effort to regain the initiative on the energy issue, which has dominated the political agenda since Ed Miliband promised to freeze prices for 20 months if he wins the general election.

The Government said it will cut the cost of the energy company obligation (ECO), an insulation scheme delivered by major energy suppliers, in a move that should shave £30-£35 off bills, on average, next year.

The Department of Energy and Climate Change also announced a rebate on the warm homes discount, which helps those in fuel poverty. This will save the average customer £12 on their bill for the next two years, although the subsidy will instead be met by the taxpayer.

Electricity companies will take voluntary action to reduce network costs in 2014/15, funding a one-off reduction of around £5 on electricity bills.

Energy and Climate Change Secretary Ed Davey said: "Today's announcement confirms a serious, workable package which would save households around £50 on average."

British Gas said it will reduce gas and electricity prices by an average of 3.2%, equivalent to £41 from an annual dual-fuel bill, with an extra £12 rebate for the Government's warm home discount scheme.

The change will apply to all customers, whether on variable or fixed tariffs.

The cut in British Gas bills comes two weeks after it hiked electricity bills by 10.4% and gas tariffs by 8.4%, adding around £123 to the average annual bill.

That increase was blamed on the cost of wholesale energy, Government energy initiatives and higher network charges for delivering power to customers' homes.

British Gas managing director Chris Weston said today: "British Gas is pleased to be cutting energy bills by an average of £53 from January 1.

"We've been able to do this because the Government has committed to making changes to the environmental and social obligations that are paid for through energy bills. These changes will now allow us to help more people at a lower cost."

The Government said it will introduce measures that will boost energy efficiency, worth £540 million over three years.

These include offering buyers of new homes up to £1,000 to spend on energy-saving measures - equivalent to half the stamp duty on the average house - or up to £4,000 for particularly expensive measures.

The Government will introduce a scheme to support private landlords in improving the energy-efficiency of their properties, which will improve around 15,000 of the least energy-efficient rental properties each year for three years.

A further £90 million will be spent over three years improving the energy efficiency of schools, hospitals and other public sector buildings.

Mr Davey conceded that household bills would still rise in the future if wholesale prices went up.

"Of course that is the case," he told BBC Radio 4's Today programme. "One of the reasons why Labour's proposal is economic illiteracy is that if wholesale prices went up during their price freeze, what would happen is the smaller companies, who wouldn't be able to trade for a loss like the bigger companies, would go out of business and that would reduce competition."

The Energy Secretary insisted that the "fuel poor" are still being protected and the energy companies would pass on the savings that are being made.

He said: "They are going to have to reduce bills for households by an average of £50 compared to what they would have been."

Mr Davey said today's plans were "a really big major investment in energy efficiency" and denied there would be fewer solid-wall insulations as a result of the changes.

For Labour, shadow energy secretary Caroline Flint said that it would be the taxpayer rather than the energy companies who would be left to foot the bill for the changes.

"Even after these changes to levies, energy bills are still rising and the average household will still be paying £70 more for their energy than last winter," she said.

"Any help is better than none, but you can judge this Government by who they're asking to pick up the tab - the taxpayer. The energy companies have got off scot-free.

"This shows why nothing less than a price freeze and action to reset the market to stop the energy companies overcharging again in the future will do."

It is understood that the deal on energy bills was among the final elements of the Chancellor's Autumn Statement to be agreed following what one Government source described as "particularly fraught" negotiations between the coalition parties and power companies.

It was only signed off following the last meeting of The Quad group of senior ministers on Friday morning.

Deputy Prime Minister Nick Clegg defended the measures as "good for the environment, good for employment and it's also good for keeping people's bills down".

Speaking on a visit to small businesses on an industrial estate in Chiswick, west London, he contrasted the Government's efforts with Labour's "con" of a promised price freeze.

"What we are trying to say to people is we are going to deliver you something you can believe in," he said.

"This is a set of measures that we have thrashed out with the energy companies which means that your bill will on average be £50 lower than it would have been otherwise.

"I know for Labour they would rather deal in fiction than fact but this is £50 off people's bills compared to what it would have been otherwise and a commitment from some of the energy companies that as long as global wholesale prices don't suddenly increase they will keep the prices steady for some time."

Although there had been "tweaking" of green measures, the stamp duty rebate for insulation offer helped ensure the package was carbon neutral "so that we don't abandon our commitment to the environment".

Consumer Futures, which represents consumers across regulated markets, said the price reduction will come at a cost as households also need longer term solutions to energy affordability.

Director Adam Scorer said: "The most sustainable way to do that is through the provision of energy efficiency measures.

"The review to cut bills has failed consumers by cutting the only levy, the Energy Company Obligation, that directly helps them. Fifty pounds per year off bills will not make a substantial difference to the millions of people suffering fuel poverty.

"We need to ensure that the limited support available is targeted at households that need it most.

It is not clear these changes will do this.

"The Government is right to move the warm homes discount levy on to general taxation and use stamp duty rebates to drive uptake of energy efficiency, two measures we have long called for.

"However, it is a short-sighted mistake to cut funding for the provision of energy efficiency measures to the nation's oldest, coldest homes."

Ministers "crumbled" in response to pressure from the Big Six firms, environmentalists claimed.

Friends of the Earth's Sophie Neuburg said: "The effect of all the measures announced today is that funding for energy efficiency has fallen by over £700 million, condemning thousands of people to shiver in heat-leaking homes.

"If ministers were serious about tackling fuel bills, they would introduce a comprehensive energy-efficiency programme and take urgent steps to wean our economy off increasingly costly fossil fuels - the real driving force behind rocketing fuel bills."

But Energy and Climate Change Minister Greg Barker insisted that extending the ECO period until 2017 would provide more confidence and long-term certainty to the industry.

He added that the stamp duty rebate would encourage improvements at a time when people are moving to a new home and were therefore more "likely to put up with the disruption that comes with major energy-efficiency upgrades".

Mr Barker said the Government still had the "most ambitious approach to energy efficiency since the Second World War".

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