Millions of households pay £170 more for energy due to Tory subsidy cuts

Effect of cuts to efficiency subsidies highlighted as government struggles to finalise energy strategy.

Millions of households are paying an extra £170 in bills because of cuts to subsidies for measures such as home insulation, according to analysis that comes during an impasse on the government’s energy strategy.

One cabinet source said it was now likely the strategy – designed to tackle rising bills and boost energy security – would not be ready this week, amid cabinet splits over funding for nuclear power and the relaxing of planning rules concerning onshore wind.

On Sunday one cabinet minister suggested the government was looking seriously at schemes to offer homeowners discounts on energy if they live near new windfarms or nuclear plants.

“We’ve seen great examples of other people where if they build a nuclear power station, within a certain radius of that power station they get free power,” said the education secretary, Nadhim Zahawi.

Campaigners have said the strategy should include further measures to make homes more energy efficient, on top of the announcement last week that VAT would be cut on materials used for measures such as the installation of solar panels and heat pumps.

Analysis highlighted by Labour found a fall in home insulation rates since 2012, when many subsidies were cut, meaning that at least 9 million households were now paying £170 a year more in electricity bills.

The party has called for a national homes insulation programme, which the shadow climate change secretary, Ed Miliband, said would reduce energy consumption enough to nullify the amount of gas imported from Russia.

Installations averaged 40,000 a month in 2012 under the previous government’s insulation programmes, the carbon emissions reduction target (CERT) and the community energy saving programme (CESP). But these ended at the end of 2012 and were replaced by other schemes, including a loan system that had low take-up.

The analysis by the Energy and Climate Intelligence Unit suggests insulation rates subsequently fell by 92%. An additional 9 million households would be likely to have benefited from the energy-saving measures had they continued at pre-2012 levels.

Labour has pledged £60bn of public investment to bring all homes up to the energy performance certificate (EPC) band C rating over 10 years, claiming it would save each family £400 a year on their energy bills and cut national gas imports by up to 15%. The average E-rated home is set to require an additional £320 a year for energy bills compared with a C-rated property.

“The chancellor’s disastrous spring statement is unraveling because he failed to tackle the cost of living crisis that working people face,” Miliband said. “The government’s energy relaunch will have no credibility unless it finally delivers on energy efficiency – the best, most effective way to reduce energy bills, cut our demand for fossil fuels and bring down carbon emissions.”

Sunak is expected to come under fire at the Treasury select committee hearing on Monday after a furious response to the spring statement, widely seen as not doing enough to ease the cost of living crisis.

Johnson is expected to try to reconcile senior cabinet ministers this week amid fallout from the spring statement, and to resolve tensions over the energy strategy.

A government source confirmed reports in the Sunday Times that Downing Street was looking at preliminary proposals for a new council tax rebate in the autumn, with consumers facing the possibility of further fuel bill rises in October. On Friday the energy price cap will rise by almost £700 to £1,971 – and it could rise to about £2,500 by October 2022 for the average dual fuel bill.

Meanwhile, Zahawi hinted that the government could do more to help with the cost of living crisis. “I think he [Rishi Sunak, the chancellor] will continue to keep an eye on this, it’s only right,” he said. “It’s irresponsible for me to say ‘job done’ because energy prices are volatile, inflation remains high, so it would be absolutely irresponsible to say ‘job done’. But I think £22bn, in one year, of help when you’ve just spent £400bn is the right thing to do.”

The shadow work and pensions secretary, Jonathan Ashworth, said Sunak had been “playing games” by announcing a future 1p cut to income tax in the statement while people were struggling this year.

“Rishi Sunak absolutely had more room for manoeuvre in this spring statement and mini budget, but rather than acting in the interests of the British people, he was playing games,” Ashworth said. “He was acting in his own interest because he thinks by offering an income tax cut in two years, that’ll help him politically with Conservative MPs if there’s a leadership contest or that’ll fit the Tory election grid.”

As well as a major expansion in energy efficiency measures, Labour has called for the chancellor to cut VAT on energy bills and to impose a windfall tax on the profits of oil and gas companies, as well as cancelling the planned rise in national insurance from April.

Author:Jessica Elgot

Photograph:Andrew Aitchison/