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Rise in energy bills a result of ‘ill-thought-out’ energy and climate policies

A report by think tank Policy Exchange argues the average household energy bill has risen by £120 over the past five years due to ill thought through energy and climate policies.

According to The Customer is Always Right, policymakers have failed to strike the right balance between energy affordability and decarbonising the economy.

The research found:

  • The average dual fuel energy bill has increased over the past five years (2009-2014) by £240 per household to £1340 a year. Half the increase in bills was due to factors controlled by government rather than the energy companies.
  • Government energy and climate policies in the form of carbon taxes, subsidies for renewable energy and energy efficiency grants now make up 7% of the average bill and network costs account for a further 22%.
  • The increase of policy and network costs explains half of the increase in bills seen over the past 5 years with policy costs increasing by more than 200% between 2009 and 2014, adding more than £60 to the average bill, and increases in network costs adding a further £60.
  • Forecasts show that domestic electricity prices could increase by a further 18% between now and 2020 in real terms due to further increases in policy costs.
  • Conversely, wholesale costs did not contribute to the increase in bills over the period 2009-2014 and are now falling.

The report also warns that the Department for Energy and Climate Change (DECC) has exhausted its budget for clean energy.

It claims spending caps governed by the ‘Levy Control Framework’ have been breached in all of the past three years.

The report suggests that the spending cap to 2020 will also be breached in the absence of changes to policies.

Richard Howard, author of the report, said: “Household energy bills have soared in recent years. This is not, as some have suggested, due to “rip off energy companies”, but in fact in large part due to government policy. Over the past five years energy and climate policy and network costs have pushed up energy bills by £120 for the average household.

“Government should take its decarbonisation commitments extremely seriously but must also recognise that what consumers really want is affordable energy. That is why we are proposing that there should be stronger consumer oversight over policy decisions, and that government should look at ways to meet energy and climate objectives at lower cost to consumers.”

While reducing the UK’s carbon emissions remains critical, the paper says that reducing energy bills must also be at the forefront of every single future policy decision taken by the government.

A DECC spokesman said: “Reducing energy bills for hard-working British families and businesses is this government’s priority. We’ve already announced reforms to remove subsidies for onshore wind and that work to make sure bill payers are getting the best possible deal is going to continue.”

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