Household bills to fall by pounds 30 a year

Household fuel bills will fall by nearly pounds 30 a year on average as a result of two energy tax cuts the Chancellor announced yesterday.

While this is bound to be popular with consumers, the price reductions infuriated green campaigners who said they would inevitably lead to greater emissions of climate-changing greenhouse gases as households burn more fuel.

A cut in the gas levy and Value Added Tax on domestic gas and electricity from 8 to 5 per cent come at a time when gas and electricity prices are already relatively low and falling. But there were no concrete moves announced in the Budget Speech to increase energy saving.

The VAT cut had been widely trailed and was a manifesto commitment. It will save the average household pounds 18 a year, but will cost the Government nearly pounds 500m a year in lost revenues. Gordon Brown said that he would like to cut VAT on household fuel to zero, but European Union rules prevented him from doing so.

The complete removal of the gas levy from next April will cut the gas bills of 18.5 million households by an average of 2 per cent, said Mr Brown. The last government had placed the levy on some old North Sea gas contracts British Gas had entered into with suppliers because these contracts escaped Petroleum Revenue Tax.

``As a result of these two changes, and other price cuts already announced, I expect gas prices to fall in real terms by 5.5 per cent this year and 11 per cent next year, which will mean a fall of pounds 90 in next year's fuel bills compared with last year's,'' the Chancellor said.

It had been widely anticipated that Mr Brown would also cut VAT on energy- saving goods to 5 per cent, putting loft insulation and draught-proofing materials on a level playing field with fuel. The Daily Telegraph made this its main front- page story last week.

But yesterday Mr Brown made no such cut, leaving VAT on these fuel-saving products at 17.5 per cent - although the Treasury did promise to review the impact of such a VAT reduction by October.

Nor did the Budget contain any other specific moves to encourage energy saving, apart from an assurance that an unspecified number of the work and training provided for jobless young people through the Windfall Tax on utilities would be in home insulation and draught-proofing. Andrew Warren, director of the Association for the Conservation of Energy, said that when Labour was in Opposition every member of the Shadow Cabinet had voted in favour of cutting VAT on energy-saving goods.

``It would only have cost the Government about pounds 15m a year in lost revenue, and have given a huge boost to energy saving,'' said Mr Warren. ``What had changed now that Labour is in government?''

The only consolations for environmentalists were Mr Brown's move to reduce the price of tax discs for clean, low-emission buses as well as lorries, to raise petrol and diesel duty by slightly more each year than the previous government had committed itself to and a promise to look into new green taxes on quarrying and water pollution in time for his next Budget in the spring of 1998.

Charles Secrett, director of Friends of the Earth, said last night: ``We're bitterly disappointed. It's just more promises for the future, and we won't be bought off with empty promises any more.

``How is Tony Blair going to deliver on the promises he made at the Earth Summit in New York? It's a green con.''

Eion Lees, director of the Energy Saving Trust set up by the last government, said: ``We're very disappointed the Chancellor did not take this opportunity to level the playing field, and make energy saving as attractive as energy consuming.''

The Treasury said the further increase in fuel duties would lead to a cut in Britain's carbon dioxide emissions of 9 million tonnes a year.

But the Association for the Conservation of Energy said the cuts in taxes on household gas and electricity would mean an extra 1.6 million tonnes of carbon dioxide being produced, as consumers responded to low prices by using more.