Levies on electricity bills deterring adoption of heat pumps and EVs, says new report

• UK has ‘disproportionately high’ electricity bills
• Cost burden of decarbonisation predominantly falls on electricity consumers
• Govt needs to take action to protect vulnerable people in energy transition

Customers could see their energy bills shrink if the government moved levies into general taxation

Removing levies from electricity bills could save consumers hundreds of pounds a year and speed up the roll-out of heat pumps and EVs, according to a new report by Cornwall Insight and the MCS Foundation.  

According to the ‘Policy Costs in Domestic Energy Bills’ report, if the government were to move environmental and social levies to general taxation, energy bills could shrink by £300 a year for consumers who heat their homes with electricity. 

As well as that, dual-fuel households could save between £130-£200 a year, and gas boiler users would see no additional cost either.

This shift would create “a significant incentive” for consumers to switch to zero-carbon technology, such as heat pumps and prove how green technology can save money. 

Residential heating is vital to the UK’s net-zero strategy, but the country currently has some of the highest electricity costs in Europe, which is holding back that heat pump take up, the report stated. 

This is in part due to levies placed on electricity bills by the government, which make electricity three times more expensive than gas.

In fact, the ‘Spark Gap’ between electricity and gas prices in the UK is one of the highest in Europe, and this is thought to be a major barrier to the adoption of low-carbon technology for consumers.

David Cowdrey, acting chief executive of the MCS Foundation said that the UK’s “disproportionately high electricity prices” are holding the UK’s energy transition back.

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

“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 it is vital for the government to “recognise the financial barriers” households encounter when looking to move 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,” Mulvaney said.

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

The report also recommended the government implement “targeted support measures such as social tariffs” to make sure vulnerable people are not negatively affected by the energy transition.

Additionally, it said policymakers should “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.”

Energy bills were one of the most contentious points of the recent general election, and the Labour government has made pursuing energy independence, which it believes is vital to achieving net zero, a priority.