– 16 July 2024 –

Removing social and environmental levies from electricity bills could save consumers up to £300 a year and incentivise the uptake of heat pumps, a new independent report by Cornwall Insight and the MCS Foundation has said.  

The UK currently has some of the highest electricity costs in Europe, and this is proving a barrier to the take-up of heat pumps, as well as driving fuel poverty. In part, this is due to levies placed on electricity bills by the Government, which make electricity three times more expensive than gas. 

Cornwall Insight’s report sets out options for reducing disproportionate electricity costs by shifting levies into general taxation. This would save up to £300 on energy bills for consumers who heat their homes with electricity, and create a significant incentive for the switch to zero-carbon, heating such as heat pumps. For dual fuel households, savings would amount to between £130-£200, providing an added incentive to switch to heat pumps.  

The report, which was commissioned by the MCS Foundation, argues that a clear roadmap towards reducing electricity prices would not only set the country on a path to addressing fuel poverty, it would also enable households to make informed decisions about incorporating energy-efficient systems like heat pumps into their homes. The underlying incentive to run electric-powered heating systems such as heat pumps would also set direction for housing developers and social housing providers. 

Moving levies from electricity bills into general taxation would mean no additional costs on gas boiler users. 

Cornwall Insight’s report provides a comprehensive analysis of key options and a call to action for policymakers and industry stakeholders. By addressing the price inequality between gas and electricity and supporting the adoption of low-carbon technologies, the UK can make significant strides towards its net zero goals.  

Government recommendations:  

• Take steps to provide detail on options to rebalance policy costs, that would reduce the amount paid by electricity dependent customers   

• Implement targeted support measures such as social tariffs to mitigate the impact on vulnerable groups at risk during the energy transition  

• Continue to encourage the use of low-carbon heating technologies through incentives, where they offer greater energy efficiency over gas boilers and could lower annual costs when coupled with a lower baseline electricity price 

David Cowdrey, Acting Chief Executive of the MCS Foundation, said “The UK’s disproportionately high electricity prices are not only driving fuel poverty, they are also holding the country back from the roll-out of heat pumps that we need to reach net zero. 

“There is a wide coalition of support for reforming electricity prices and implementing change should be a top priority for the new Government.  

“Moving levies off electricity bills into general taxation would incentivise heat pump uptake and tackle fuel poverty, a win-win.” 

Kate Mulvany, Principal Consultant at Cornwall Insight said: “While the electrification of heating is widely accepted as critical to the UK’s net zero ambitions, we must recognise the financial barriers households encounter when looking to make the transition over to electric heating and low-carbon technologies.   

“Our report illustrates that through addressing the price inequality between gas and electricity, households could be empowered to make environmentally friendly choices and save money at the same time.   

“By reducing the cost of the electricity transition, we can help foster a cleaner, healthier, and more resilient society for future generations.” 

– ends –

The report can be downloaded here: https://mcsfoundation.org.uk/wp-content/uploads/2024/07/Policy-Costs-in-Domestic-Energy-Bills.pdf