The average household energy bill will fall £150-a-year from April, Rachel Reeves said yesterday – but she will move some costs on to the taxpayer.
The Chancellor said she would scrap an ‘eco scheme’ introduced by the Tories in government, which she claimed cost households £1.7billion-a-year.
But in a sleight-of-hand that enables Ms Reeves to argue that she’s reduced bills, some of the rest of the saving will be transferred on to general taxation.
Despite Labour‘s pre-election pledge to reduce bills by £300, the energy price cap is £190 higher than when it came to power last year.
Ms Reeves told the Commons she would scrap the ECO (energy company obligation) scheme which was introduced by the Tories.
‘It costs households £1.7 billion a year on their bills and for 97 per cent of families in fuel poverty, the scheme has cost them more than it has saved. It is a failed scheme,’ she said.
‘So, I am scrapping that scheme along with taking other legacy costs off bills. And as a result, I can tell you today that, for every family we are keeping our promise to get energy bills down and cut the cost of living with £150 cut from the average household energy bill from April.’
Labour came to power on a pledge to reduce energy bills by £300-a-year over the course of this Parliament.
The reduction in bills will be made by cutting some green levies that support renewable electricity and abolishing a scheme funding home efficiency upgrades.
Chancellor Rachel Reeves delivers her Budget in the House of Commons this afternoon
She will scrap the ECO – which forces energy companies to pay for measures like insulation and new heating systems for low-income households – in April 2026.
She will also cut by 75per cent the cost that suppliers have to pay for certificates to show they have sourced electricity from renewable projects .
These costs will be picked up by the taxpayer for the next three years when the relief will become the responsibility of energy companies once more.
The government will also abolish charges on bills that fund energy efficiency upgrades for lower income households from April next year.
But they have also increased funding for the warm homes plan by £1.5 billion, presumably to compensate for scrapping the scheme.
While Ms Reeves claims that these changes will trim bills by £150, market analysts put the savings slightly lower.
UK policy think tank Nesta and energy consultancy Cornwall Insight Ltd calculate the saving at closer to £135, Bloomberg reported.
Without the interventions, the price cap, set by regulator Ofgem, is set to reach 1,758 pounds a year in January, around 12% higher than the 1,568 pounds a year level it was at when Labour came into power in July 2024.
The UK’s fiscal watchdog, the Office for Budget Responsibility (OBR), said transferring the Renewables Obligation (RO) to taxation would mean higher borrowing.
‘The Budget policy to part-fund the RO scheme for three years temporarily shifts a portion of the costs from domestic energy bills to the Exchequer, leading to higher borrowing,’ it said.
But energy bills are still rising even as wholesale power and gas prices are falling due to higher grid and policy costs, which include green levies.
Last week, energy regulator Ofgem said of an increase in bills: ‘The price cap change is driven by government policy costs and operating costs.’
The costs take the price cap to £1,758 a year despite the wholesale energy prices falling by four per cent.
The cap is £190 higher than when Labour came to power last year, despite Mr Miliband’s pre-election pledge to cut bills by £300.
The high cost of energy bills includes the price of subsidising renewable energy which Labour is banking on to provide cheaper energy.
But there has been a backlash to the project, with concerns being raised about the UK’s sky-high energy costs which are the highest in Europe.
The upfront cost of moving from an energy system built on gas to one dominated by renewables is one of the big reasons for high energy costs.
Energy bills are expected to rise by £57 from April according to Cornwall calculations due to higher charges for operating the UK’s energy grids.
Shadow energy secretary Claire Coutinho said energy bills had gone up since Labour came to power due to Ed Miliband’s ‘obsession with Net Zero’.
‘Labour promised to cut energy bills by £300 but they’ve gone up by £200 since they came to power,’ she said.
‘Their meagre bills package saves families less than our Cheap Power Plan, costs taxpayers more, and doesn’t do a single thing to reduce energy bills for businesses.
‘Rachel Reeves is giving with one hand but giving with the other, as taxes go up to pay for the cut in bills. The truth is they’re having to scramble around to find any way to cut bills because they all know Ed Miliband is pushing bills up because of his obsession with Net Zero.’
