Electrical and energy industry calls for urgent reform of electricity levies

Electricity prices are four times higher than gas, making it harder for households and businesses to switch to cleaner fuel. This is all down to outdated taxation (or levies) on electricity. Almost half of all electricity is now produced from renewable sources.

ECA has long advocated for the reform of levies on electricity by rebalancing of taxation between electricity and gas. In Britain we are paying some of the highest electricity prices in the world, slowing down the adoption of electrification in heat and transport. ECA, along with 35 organisations from the energy sector, have written an open letter to the Secretary of State, Ed Miliband, calling for urgent reform of the electricity levies.

The number one recommendation of the independent Climate Change Committee’s Seventh Carbon Budget is to make electricity cheaper by removing policy costs. The joint letter supports this position, while pointing out the importance of electrification to the UK energy security and independence in an unstable world.

The letter said: “Even if climate change was not happening, it would still be right to electrify. Our dependence on gas imports exposes every household with a gas boiler, and the entire economy, to the erratic international gas markets the UK cannot influence." Full Letter below and via this link

"Rt Hon Ed Miliband MP

Secretary of State for Energy Security and Net Zero

28 March 2025

Dear Secretary of State,

You have made tremendous progress already in your Clean Power Mission. We are writing to you today to support you in making further progress on making it easier for people to benefit more directly from a cleaner power supply.

British people and industry are paying some of the highest electricity prices in the world. We ask that you initiate a consultation process to urgently address Britain's high energy bills. This should include policy levy reform.

You are right that moving to a more electrified energy system can cut costs for all, greatly enhance energy security by shielding the economy from gas markets, and lower pollution.

But with the government's policy levies on energy bills, which are almost entirely on electricity, electric technologies and appliances are not always the easy choice consumers that they should be.

The classic example is a heat pump. Its efficiency means it should cost less, sometimes much less, to provide the same heating service as a gas boiler, but the levies on electricity can stop this from happening.

If the government wants people to adopt electric cookers, heating, and cars, it must stop giving older technologies and fossil fuels a de facto subsidy over electricity. At minimum, we need a level playing field.

High prices and levies today are leaving many of the most vulnerable people dependent on older, less efficient electric heating appliances with bills they struggle to afford. We should upgrade these old appliances to modern equivalents to cut bills and expand the potential for flexible energy management.

Levy reform should ensure a fair distribution of costs for people, create more routes to educe energy bills overall, be compatible with tackling climate change, and be as economy-wide and technology-agnostic as possible.

The Climate Change Committee's advice is clear: we must make electricity cheaper if we are to electrify and decarbonise heating and transport, the two largest sources of UK greenhouse gas emissions.

But even if climate change was not happening, it would still be right to electrify. Our dependence on gas imports exposes every household with a gas boiler, and the entire economy, to the erratic international gas markets that the UK cannot influence.

The best option would be to remove the levies from all energy bills, but we appreciate that, given the current economic environment, this is likely not possible.

We would also support a rebalancing of levy schemes between electricity and gas. Any changes to how policy costs are applied to electricity and gas must be mitigated by better targeted bill support for households who are struggling most with energy costs, as recommended by Citizens Advice, Energy UK, and Nesta.

Another option we would support is a redistribution of overall levy cost rather than individual levies, to create a more coherent, flexible, transparent, and fairer levy system across gas and electricity. There is more than one way to do this and as with levy scheme rebalancing it would require accompanying fuel poverty support. Individual signatories can provide more details through consultation.

All of these options should be combined with wider energy bill reform and policies to ensure those in most need are not unfairly penalised. The heating and transport transitions will take years and trade offs are necessary. But moving to a smarter, lower cost system that protects British households from volatile international gas markets is critical for economic growth.

We would not support a new levy on gas consumption to subsidise the operation of specific electric technologies. This will make an incoherent system worse and undermine public perceptions of electric technologies as something being forced upon them.

There are other options, too, which individually we will provide as part of the consultation process. The important thing is that the government makes progress on this long overdue policy. We ask that the government consults as soon as possible so the energy and charity sectors can feed back their conclusions after three to four years of debate, with the urgency that people and industry deserve.

Yours sincerely,

This article appears on the ECA news and blog site as "ECA calls for urgent reform of electricity levies" dated 8 April, 2025.

--ECA

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Comments

Why not admit that we cannot yet generate sufficient electricity from renewables so we must tax gas?

Also explain when we can safely switch to electricity for our heating, cooking and transport so we then know when gas will no longer be supplied.