'Perverse' environmental charges on even the poorest families could see energy bills go up by a third

Extra charges making vulnerable households pay for the Government’s environmental commitments are “perverse” and should be scrapped, MPs said today in a wide-reaching report on the way we pay for gas and electricity.

The cost of funding renewable energy and efforts to reduce the country’s carbon footprint will add a third to the average family’s annual fuel bill by the year 2020, according to a report from the Department for Energy and Climate Change.

As things stand, those charges mean we pay on average an extra £59 a year on electricity bills and an extra £49 a year on gas.

Ed Davey, the Secretary of State for Energy and Climate Change, told a Commons Select Committee that the Government expected when it imposed large levies on energy companies that they would “pass on these costs”.

Today’s report observed that those in fuel poverty proportionately suffered more from picking up the bill for environmental measures, because the costs impacted all households at roughly the same level.

Consumer Focus and Age UK recommended that environmental and social levies were applied on a per-unit of consumption basis, rather than a per-household basis, “to protect fuel-poor households which, on average, consume less energy”.

MPs went further, recommending a tax to pay for environmental policies that would see higher earners shouldering more of the cost.

The report said: “The impact of levies on the bills of the fuel poor is perverse when they will derive no direct benefit. Shifting the emphasis from levies to taxation would help protect vulnerable households.”

In their wide-reaching assessment of the energy market, MPs also suggested means-testing for the Winter Fuel Payment, and said that the savings made “could be used to boost investment in energy efficiency programmes”.

And the report said that while rising prices meant “the situation for the most vulnerable worsens”, the way the “big six” energy companies managed their finances and set their prices needed to be made much more transparent.

“There is no widespread understanding by consumers of how much of their bills are made up of levies,” the report said.

“Governments, the regulator and energy companies need to do more to promote accurate understanding of energy prices.”

They said Ofgem, the gas and electricity regulator, was “unwilling to use the teeth it has”, adding: “It is time for Ofgem to take decisive action to improve transparency and competitiveness in the retail and wholesale markets taking full advantage of both EU and UK legislative powers.”

Fuel poverty charity NEA welcomed the report, saying that current measures to address the level and depth of fuel poverty did not constitute an “ambitious strategy”.

Friends of the Earth's energy campaigner Guy Shrubsole said: ”MPs have hit the nail on the head - more needs to be done to stop Big Six profiteering at the expense of hard-pressed households and the planet.

Sarah Harrison, of Ofgem told BBC Breakfast: “We agree with the committee that the energy companies have been poor in communicating with and accounting to customers but that's why we've been leading the way on transparency.

“We are here with one goal in mind, which is to protect customers, and we will use the full range of powers we have got to do that.”