Households to get £150 bill cut as energy efficiency scheme scrapped

Households will receive an average £150 cut in energy bills, as the Government scrapped a long-running energy efficiency programme.

Chancellor Rachel Reeves said the high cost of energy was “one of the greatest drivers of the rising cost of living”, as she announced changes to the levies put on bills, in the Budget.

But campaigners described the move to ditch the energy company obligation – a scheme which provides efficiency measures such as insulation for fuel-poor homes – as “a devastating blow” that cuts funding for measures that permanently bring down bills.

Energy bills are being cut by taking 75% of the cost of subsidies for older renewables projects, known as the “renewables obligation”, off electricity bills and into general taxation for the rest of the spending review period, saving £88 on average.

And the Government will not renew the ECO scheme, which is paid for through levies on bills, saving £59 on average.

There will also be a £7 saving on VAT from the two measures, adding up to £154 off bills for the average household, the Government said.

Announcing the change, the Chancellor said: “The Conservatives’ ECO scheme was presented as a plan to tackle fuel poverty.

“It costs households £1.7 billion a year on their bills and for 97% of families in fuel poverty, the scheme has cost them more than it has saved.

“It is a failed scheme, so I am scrapping that scheme along with taking other legacy costs off bills.”

The Government also said it would provide an additional £1.5 billion capital investment to tackle fuel poverty through its warm homes plan, in addition to the £13.2 billion of funding allocated in the spending review earlier in the year.

Reducing the cost of electricity, on which most levies fall, relative to gas, is seen as key to encouraging people to switch to clean electric technology such as heat pumps and electric cars.

But while the Chancellor’s decision to take renewables subsidies off bills, a widely called-for move, was welcomed, campaigners said the scrapping of ECO would cut funding for green homes from £20 billion to £15 billion over the course of this parliament.

Ed Matthew, campaigns director at the independent climate change think tank E3G, said: “Cutting taxes from electricity bills is a crucial step towards helping people to switch to clean energy.

“But this is overshadowed by the morally indefensible decision to scrap the national home insulation scheme ECO.

“This is exactly the kind of sticking plaster politics this government promised to end, and fatally undermines the best long-term solution to fuel poverty.

“It will also cost 10,000 jobs and prevent one million families from insulating their homes in the next four years.

E3G said the 30-year-old scheme had helped 15 million homes, with an average saving of some £7,500 off bills, saving the country £113 billion and reducing energy demand, which cut the costs of new power infrastructure.

The most recent version of the scheme failed as a result of poor regulation and oversight, leaving thousands of homes with poor quality and even dangerous solid wall insulation, but E3G said the obligation should be reformed, not axed.

Garry Felgate, chief executive of the MCS Foundation, which supports the decarbonisation of homes, said: “Today’s Budget is a partial step towards cutting the cost of electricity in Britain.

“However, doing so by ending funding for the Energy Company Obligation (ECO), which has supported low-income households to access affordable, secure, clean energy, is a devastating blow.”

And he said: “We urge the Government to now provide details of how the gap left by ECO will be filled, to ensure low-income households have access to the critical technologies that can both help deliver lower bills and tackle fuel poverty.”

Greenpeace UK’s head of politics, Ami McCarthy, said: “The Chancellor is playing energy-policy whack-a-mole, with some genuinely welcome decisions, and others as short-sighted as the little velvety tunnellers themselves.

“Shifting most green levies into general taxation is great news for billpayers and will fund long-term bill-saving schemes far more fairly.

“But cutting the insulation programme and funding risks leaving millions of households in fuel poverty, trapped in cold, damp homes.

“The energy efficiency scheme desperately needed reform, including stricter rules to stop shoddy work by cowboy installers, but scrapping it outright will prove counter-productive.”

Industry body Energy UK’s chief executive Dhara Vyas said investing in clean power would protect customers from volatile prices and lead to more stable bills in the future, but reducing bills now was “an important first step”.

But she warned cutting ECO would significantly reduce the overall funding available for home improvements that would lower bills, and would hit companies that have invested in the sector.

“A focus on electrifying homes, businesses, and transport, as well as continuing to work towards making homes energy efficient, are all crucial to ensuring millions more people can live in warmth and comfort, particularly low-income customers who suffer the most from poor housing,” she said.