The energy crisis – all Trussed up?

Now our new Prime Minister has taken office one of her first tasks will be how to reduce the impact of the cost of living crisis – and in particular the meteoric rise in fuel bills. We’re told to expect an announcement imminently so do we think she will have it all Trussed up? As the scale of fossil fuel price rises has become clearer in recent months various ideas have been put forward as to how this can be mitigated, including the suggestion that the so called “green levy” attached to fuel bills should be scrapped. So, what is this “green levy” and would its removal actually lower fuel costs to households? The size of your energy bill correlates to the size of the energy fuel cap. Set by the energy watchdog, Ofgem, the cap is based largely on wholesale energy prices and limits what you pay for each unit of gas and electricity that you use. It also sets the maximum standing charge which you pay to have your home connected to the supply grid. There are various other costs attached to your bill, for example profits, VAT and other taxes and the green levy. The gas and electricity watchdog Ofgem describes the levy as a “social and environmental obligation”. It is an amount added to fuel bills to meet Government policies. Last winter, when the average household fuel bill stood at £1278 a year, the levy was £153 and so made up 12% of your bill. The confirmed price cap rise that comes into effect in October will see the average household energy bill rise to £3,549. The levy will remain the same – making up 4.3% of your bill. According to research by money saving expert Martin Lewis the price cap is set to rise further in January 2023 increasing the average household energy bill to an eye watering £5,387. The green levy will make up less than 3% of this. So, what does the green levy actually pay for? Part of it paid for the cash rebates that every household received in May of this year but more generally it is used to target help towards the most vulnerable, such as pensioners, helping them to upgrade and insulate homes to make permanent reductions in fuel use. It has also been used to fund the Warm Home Discount scheme which reduced the fuel bills of those on lowest incomes. The best way to protect households from high fuel bills in the short term is to make homes as energy efficient as possible, which the green levy can help the poorest households achieve. In the long term it’s for the UK to have a self-sufficient, sustainable energy policy that replaces the fossil fuels of gas, oil and coal with renewables like solar, wind, air and ground source. Whether either of these things happen is dependent on the direction Liz Truss decides upon, so watch this space!

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