Could the green insulation levy be cut?

According to The Times, the treasury is reviewing the Energy Company Obligation, a £1bn levy which adds £29 to the average annual energy bill and supports about 200,000 households a year. The policy is viewed as an important part of the government’s attempt to hit net-zero targets. 

One government source told the outlet the business department is opposed to the cut, which it believes would be a “retrograde” step and “short-termist”. 

The treasury is also said to be reviewing all green levies, including more substantial ones for renewable energy, as well as drawing up plans for a windfall tax on oil and gas - something that has been proposed by Labour and would raise £1.2bn. Ministers are however concerned that increasing taxes on energy producers could disrupt supplies. 

Other options officials are reportedly considering include facilitating billions in loans to energy companies to help them spread the cost of increased gas prices over a number of years, and cutting VAT on energy bills. 

The government is looking for ways to reduce the cost of energy bills on consumers, which have shot up due to the increase in the price of wholesale gas. This led to the energy price cap increasing to a record £1,277 - and could increase by almost 50% when the new cap is set by Ofgem in February 2022. 

According to research from the Resolution Foundation, the higher energy bills - alongside stagnant wages and tax rises - could leave households with a £1,200 a year hit to their incomes in 2022, squeezing the cost of living in the UK.