More than 120 organisations, including major businesses, charities, and trade bodies, have written to the chancellor urging the removal of "hidden taxes" from energy bills to reduce costs for consumers and prevent business closures.
The letter, signed by 123 entities such as Energy UK, the CBI, End Fuel Poverty, and Age UK, calls for levies that currently fund government policies—amounting to 10% of energy bills—to be paid for by the government instead. The signatories argue that shifting these costs would lower the average household bill by up to £250 per year and cut electricity prices for businesses by 20%.
Levy Funding and Government Policy
The organisations specifically request the scrapping of the remainder of the levy used to fund renewable energy projects, following former chancellor Rachel Reeves's move last year to shift 75% of that funding to government taxation. They also call for an end to levies supporting nuclear power plant construction, the warm homes discount scheme, and the feed-in tariff programme—closed in 2019 but still paying businesses and customers with ongoing contracts for generating their own energy and supplying excess back to the grid.
Ed Matthew, director of the UK programme at thinktank E3G, which co-authored the letter with Energy UK, said: "The UK is actively sabotaging its own efforts to bring down energy costs by taxing electricity. Any credible plan to tackle the cost of living and enable reindustrialisation needs to include removing these taxes from bills to the exchequer."
Impact on Households and Businesses
The letter warns of the broader economic impact, stating: "High energy costs are widely recognised as a significant constraint across the economy, driving business closures and job losses, while simultaneously deterring investment in the UK." Last year, Britain's largest energy supplier, Octopus, said bills were on track to rise by 20% over the next four years, even if wholesale prices fell, due to the increasing cost of government policies levied on bills.
Dhara Vyas, chief executive of Energy UK, said: "High electricity prices hurt all of us. By taking levies off the bill, the government can show it is serious about tackling fuel poverty and the cost-of-living crisis, growing the economy, and bringing down inflation. Cheaper electricity would have an outsized impact across the economy."
Current Energy Costs and Political Pressure
The UK faces some of the highest energy costs in the developed world, with bills now 70% higher than in 2021. The outbreak of the Iran war has driven gas and electricity prices up, leaving households facing the highest energy charges in three years this winter. Energy consultant Cornwall Insight forecasts that Ofgem, the UK regulator, will increase its quarterly price cap again in January, putting the average annual bill at £1,872.
The government is under pressure to address these costs, having promised in its 2024 pre-election campaign to cut energy bills by £300 a year by 2030. In July, Andy Burnham announced a cut to VAT on domestic energy bills from October, saving an average of £45, though this reduction is currently set to remain only until April. Chancellor John Healey is to present his first budget on 28 October, and the letter urges him to act on the levies to deliver tangible savings for households and businesses.
