Calls for levy exemptions to be extended to domestic bills

The government has been urged to extend the policy costs exemptions proposed for energy-intensive businesses to bring domestic bills down.

It comes after the recently-formed Department for Energy Security and Net Zero announced new measures to drastically reduce energy costs for 300 heavy industry firms.

Proposed changes will exempt firms from certain green levies, such as those connected to the Feed in Tariff, Contracts for Difference and the Renewables Obligation, as well as Capacity Market costs.

Additional information about the proposal, along with delivery mechanisms and timelines for implementation, will be revealed in the coming months as part of a consultation.

Caroline Flint, a former Labour MP who chairs the Committee on Fuel Poverty, welcomed the support for business but said that it cannot be at the expense of households.

“Clearly if we want to sustain our foundation industries to manufacture in Britain, they need support to be viable and transition to cleaner energy use. But that can’t be at the expense of those in fuel poverty and vulnerable high energy users,” Flint told Utility Week.

“As government decides what’s next to support households with bills and reduce fuel poverty, they need to ensure price and subsidy policies are joined up. Otherwise, there is a danger of making it even harder for many households to pay for their energy.”

Jeff Hardy, a senior research fellow at the Grantham Institute – Climate Change and the Environment, at Imperial College London, said there are two ways that government could cover the costs of the exemptions. Firstly, it could use taxes to cover the revenue lost through the business exemptions. The second would be to increase energy bills for everyone else.

Both mechanisms of covering exemptions have been used in the past by Conservative governments.

From October 2022, some policy costs were taken off businesses’ energy bills and paid by tax for a temporary period as part of measures attached to the Energy Price Guarantee. While in 2015, the Intensive Energy User Exemption removed some of the green levy costs from energy-intensive businesses and spread them across all other consumer bills.

Many of the changes announced to support heavy industry have previously been suggested to provide relief to the domestic market.

Hardy said that extending these exemptions to the domestic market “is fairer and also would support the government’s push for net zero”.

“Obviously high energy prices are problematic for businesses and it makes sense for the government to do something to address that. But government has previously said that it would look into removing levies from domestic customer bills and it still hasn’t when clearly they can move a lot quicker as this latest announcement shows,” he said.

“Generally speaking, everyone should be exempt in the domestic market. Having these levies on bills is a regressive way of funding the initiatives. It is much fairer to do it through general taxation so that the people who can afford it pay more than those who cannot.”

He added: “Government wants to accelerate the adoption of electric vehicles and electric heat pumps and moving these levies off bills and on to taxes would provide an incentive for people to do that.”

Tom Luff, senior adviser (electricity markets & policy) at Energy Systems Catapult also believes that paying for green levies differently can help bring energy bills down across the board and promote the adoption of greener technologies.

He said: “Net zero requires us to electrify much of our economy. This can be encouraged by ensuring power is affordable for all consumers. Lowering bills by paying for green levies differently – for example, through general taxation – can help. Ultimately, though, we need to modernise the power market to incentivise efficiency and drive down costs.”

A spokesperson for Fuel Poverty Action added: “Yet again, we see the government prioritising big business ahead of long-suffering households.

“Household energy prices are being increased again in April, and support cut. Millions of critical workers like nurses will be left in debt, and even a hot shower after a long shift is becoming a luxury.

“In contrast, big fossil fuel intensive businesses are paying significantly less for energy already. And now a plan to shift more of their costs straight onto households, on top of offering them huge subsidies from stretched public funds. This is unacceptable.”

Ways of supporting customers will be discussed at Utility Week’s Customer Summit on 21 and 22 March in Birmingham. Find our more here.