The Treasury is reportedly reviewing the Energy Company Obligation (ECO), which is a £1billion levy on energy bills that helps about 200,000 households a year, according to The Times. This charge covers the cost of insulation for the poorest households in the UK and may be cut amid concern about rising gas prices. The levy, which helps fund the installation of new boilers and insulating homes, adds £29 to the average annual energy bill and is part of the government’s actions taken to achieve net-zero carbon emissions.
According to a Government source, the Department for Business, Energy and Industrial Strategy is against scrapping the tax, which it believes would be a “retrograde” step.
The source said: “Cutting it would be short-termist. Ultimately this is about reducing costs.”
This comes amid fears over a £2,000 energy bill for residential homes in April when the price cap is set to rise.
Trade body Energy UK had predicted the sky-high rise could hit squeezed households in April – when changes to the price cap kicks in.
There have been warnings that average households could pay almost £700 or more a year, amid surging prices for wholesale gas worldwide.
Under this scheme, the average household has saved an estimated £290 a year on heating costs and installation.
The Treasury is reportedly reviewing all green levies, including more substantial ones for boosting renewable energy.
However, many of these charges are subject to binding contracts, meaning the Government would still have to pay them even if they were taken off consumer bills.
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Prime Minister Boris Johnson held talks with the Chancellor on Sunday night to discuss the cost of living crisis.
On Monday, Mr Johnson stated that energy costs were “just one component” of the pressure on households.
He said: “There’s a general inflationary pressure caused by the world economy coming back from Covid, and in the US, I think, inflation is likely to be the highest it’s been since the early Eighties.
“The eurozone is experiencing exactly the same thing. Here in the UK, I’m afraid we’re seeing the same problem.”
Meanwhile, Labour proposed a major tax cut that could help struggling households avoid their energy bills skyrocketing by 50 percent.
Sir Keir Starmer’s party wants the Government to commit an extra £3.5bn to the warm homes discount.
This would increase it from £140 to £400 per year and double the number of households eligible to 9.3 million – around a third of the UK total.
He also wants to remove the five percent VAT rate on domestic energy bills from April for 12 months.
However, the Government rejected this proposal and the motion was defeated by 319 votes to 229.