The Labour party is expected to take action in the upcoming Budget to reduce energy costs for numerous households. Chancellor Rachel Reeves might eliminate VAT on energy bills, potentially saving each customer around £84 annually. Calls have been made for more extensive measures, with influential figures like Martin Lewis advocating for shifting policy expenses from bills to general taxes.
Rising gas and electricity prices have exacerbated the financial strain on many Britons. Ofgem confirmed that the price cap for 34 million energy accounts will increase to an average of £1,758 per year in January, contrary to hopes for a decrease. This hike coincides with a period of heightened energy usage, particularly in the initial months of the year.
Projections suggest that the energy price cap could surge to an average of £1,815 in April, primarily due to escalated charges for maintaining the UK’s energy networks. Energy bills have soared nearly £700 above levels from five years ago, adding to the financial burden on households.
Rachel Reeves has emphasized the importance of easing the cost of living in the Budget. Science Secretary Liz Kendall hinted at potential government actions to address the issue, affirming a commitment to reducing living expenses through forthcoming measures.
Various components contribute to the average annual energy bill of £1,758, with the wholesale cost of gas and electricity being the most substantial at £690. Network costs amount to £396, while suppliers’ expenses and profit margins also play a part in the total bill.
The primary driver behind the January price increase is a rise in government policy costs, including obligations for renewables, energy company initiatives, and funding for projects like the Sizewell C nuclear power plant. Concerns have been raised regarding the impact of these policy costs on future price escalations.
Experts anticipate further bill increases in April, attributing the trend to non-energy-related costs essential for maintaining energy systems. The redistribution of policy costs from electricity bills to general taxation has been proposed as a potential solution to alleviate the financial strain on households.
Energy industry stakeholders, including Minister for Energy Consumers Martin McCluskey and trade body Energy UK, have expressed support for government initiatives aimed at reducing energy bills. Ofgem’s price cap sets limits on unit rates and standing charges, impacting how much customers pay based on their energy consumption levels.