In a new drive to instil another drop of confidence in his government, Gordon Brown has this week released plans for a £1 billion energy relief programme, but once again he may have missed the spot.
The plan will force energy companies to contribute £910 million over the next three years to help pensioners and poor households cope with rising energy costs and become more energy efficient. The scheme includes free and or half price insulation, a freeze on energy bills, and an increase in cold weather payments from £8.50 to £25 a week.
Mr Brown believes that the plan could save families £400 a year and the measures were a “better alternative" to a windfall tax, insists that he does not “expect that they will pass on these prices to consumers."
Despite these rather optimistic comments, experts in the industry believe that, as would be the case with a windfall tax, the cost incurred by energy companies will be passed onto the consumer – particularly middle class households. Dieter Helm – Professor of Energy Policy at New College, Oxford, and a former Downing Street adviser – described it as, “completely naïve" to think that the cost would not be passed onto consumers through higher bills.
David Porter, CEO of the Association of Electricity Producers, which includes six of the biggest energy companies operating in the UK, commented that, “Whenever people impose costs on an industry, the bill to some extent always ends up with the customer."
As it stands, companies are already required to pay money into a fund, which is distributed to help consumers reduce their bills. The fund, called the Carbon Emissions Reduction Target (Cert), is paid for by the energy companies by adding a premium to domestic energy bills, currently costing households about £35 per year. £560 million will be taken from Cert, which is only around 60% of the £910 million bill, leaving the additional 40% to be paid by households via further increased energy premiums.