Scrap green taxes or they will add a third to electricity prices by 2020, MPs warn 

Swingeing green stealth levies on energy bills are ‘perverse’ and should be scrapped, MPs warn today.

A major report says the taxes are hitting poorer families hardest.

MPs also call for middle-class pensioners to lose their winter fuel allowance, with the savings redirected to help low-income households insulate their homes.

And they attack the regulator Ofgem for failing to hold energy firms to account for soaring prices.

The findings come in a report by the Commons energy and climate change committee, which warns that, based on Government estimates, green levies will add a third to electricity prices by 2020 – even before expected rises in wholesale prices are factored in.

Ministers have been accused of using stealth taxes to fund the huge subsidies given to green energy firms – needed to meet controversial carbon reduction targets set by the last government.

MPs warned that most families have no idea what the green energy drive is costing them, adding: ‘There is no widespread understanding by consumers of how much of their bills is made up of levies.’

The average family pays £1,267 towards energy bills, with £112 comprising green taxes – £18 of which is directly spent on subsidising wind farms.

By 2020 the contribution will have increased by more than 150 per cent, with each household required to pay £286 as part of their bills, according to the Department for Energy and Climate Change.

The committee’s report says: ‘Increasing use of levies on bills to fund energy and climate policies is problematic since it is likely to hit hardest those least able to pay.’

MPs suggested that if the green subsidies were to continue they should be funded through the tax system, which is more transparent and ‘less regressive than the levies’.

The report questions the repeated claim by ministers that families will see lower bills as a result of Government policies, which include measures to promote energy efficiency.

It calls on ministers to start an ‘honest conversation about the fact that energy bills are highly likely to continue to rise’.

Since 2007, average prices of gas and electricity have increased by 41 per cent – 20 per cent in real terms – leaving millions of households in ‘fuel poverty’. MPs warned that the public’s ‘deep mistrust’ of energy providers will continue unless they show greater transparency and reassure households that high prices are not fuelling excessive profits.

Dr John Constable, director of the Renewable Energy Foundation, said: ‘There is little or nothing to be said in favour of energy bill levies.

‘They hurt the poor most, they reduce competition in the energy markets and make supplier switching less effective – and by camouflaging government taxation they reduce democratic accountability. If the levies were cancelled tomorrow, no one would shed a tear.’

The report re-opens the debate over whether better-off pensioners should continue to receive the winter fuel allowance, which is worth up to £300 a year.

David Cameron has ruled out any change to the system before the election in 2015.

But the cross-party committee urged ministers to introduce ‘better targeting of the winter fuel allowance through means testing’ and to consider ‘how savings could be used to boost investment in energy-efficiency programmes’.

MPs also said they were ‘disappointed at Ofgem’s slow progress’ in forcing the energy giants to reveal how much they were making from household bills.

The regulator must ‘use its teeth’ and force energy firms to explain the reasons behind price rises, the report says.

But Sarah Harrison, of Ofgem, said the watchdog welcomed the report and rejected any suggestion that it was ‘falling down on the job’.

‘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,’ she told BBC Breakfast.

‘We require the energy companies to report where their costs are and where they are taking their profit across different parts of their business.’

She added: ‘We are here not to be nice to anybody in particular or indeed tough to anybody in particular.

‘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.

‘That includes taking penalty action against companies who fail their customers – and they do.’

Providers also were criticised in the report for ‘falling far short of what is required to increase transparency and improve consumer trust’.

MP John Robertson, who sits on the energy and climate change select committee, said there is a lack of competitive pricing between the big energy companies.

Speaking on Radio 4’s Today programme, he said: ‘The fact of the matter is we have six large companies that charge roughly the same and have the same increases but they are meant to be in competition with each other.

‘If you think six companies will all work in the same way with the same rises and profits, I don’t think that’s right.

‘Supermarkets try and undercut each other to prove they are the best but it seems to be about how much they [the energy companies] can make and to make it as high as possible.’

Energy Secretary Ed Davey rejected the suggestion that ministers were misleading the public over the impact of green energy measures on bills.

He said: ‘Our policies to support renewable energy and reduce energy waste are insulating consumers from the rising cost of fossil fuels. And by 2020, our analysis shows household energy bills will on average be £166 lower than they would be if we did nothing.’

The trade association for the energy industry said profits were necessary for employment and investment in new power stations.

Angela Knight, chief executive of Energy UK, said: ‘We have seen radical change – there are fewer tariffs and the new deals are clearer so it is easier to compare, bills have been simplified so they are easier for customers to follow and it is simple to switch from one supplier to another.’