Tories ‘to cut aid given to poorest customers by energy companies’

Ministers may reduce levies on firms as SSE blames latest price rise on cost of subsidies

Utility giant SSE is increasing gas and electricity prices by an average of 8.2% (PA)

Senior Conservative ministers are attempting to cut the amount of money energy firms have to spend helping their poorest customers reduce the cost of their bills, The Independent understands.

Today SSE became the first of the “Big Six” energy firms to announce it will raise gas and electricity prices by up to 10 per cent from next month – adding around £100 to a typical bill. But the company claims that this rise could have been restricted to around £50 if it was not forced to spend £300m a year subsidising energy efficiency improvements for poor households.

Yesterday Alistair Phillips-Davis, the chief executive of SSE, also told The Telegraph that fuel bills will go up every year for a decade unless the Government decides to take responsibility for funding green, low-carbon energy initiatives through the tax system – or simply scrapped them altogether.

Senior Tories are said to be sympathetic to the company’s argument and believe the Big Six could restrict overall price rises significantly if the £1.3bn a year Energy Companies Obligation (ECO) was scrapped or watered down. However, they are being strongly opposed by the Liberal Democrats who point out that such energy saving measures directly help those who run the greatest risk of fuel poverty.

Under the ECO, the Big Six are obliged to pay for the installation of energy efficiency measures in low-income households and areas, and in properties that are harder to treat. The scheme began in January and is due to run until 2015.

But following Ed Miliband’s pledge to freeze energy prices should Labour win the next election, senior Tories have raised the possibility of scrapping the ECO as a way to restrict price rises.

David Cameron said he was looking to address the “causes of prices” adding that “green levies shouldn’t be there for a moment longer than they’re necessary”.

But Lib Dem sources said they would fight off any attempt to scrap or downgrade the measure, warning it was “essential that vulnerable people got the assistance they needed to keep their home warm,” adding: “This is not something we are prepared to give ground on.”

It is widely believed that SSE’s announcement will herald a series of rises among the other big energy suppliers – Centrica, EDF, Scottish Power, E.ON and npower.

Will Morris, group managing director of retail at SSE, apologised to customers but said it had been forced to raise tariffs amid rising costs. The company said wholesale energy prices were up 4 per cent, paying to use newly-upgraded networks by 10 per cent and Government-imposed levies up 13 per cent. It argued that the cost of funding the low-carbon energy ECO ought to be shifted to the taxpayer.

“We know we will come in for a great deal of criticism for this decision and politicians will no doubt be lining up to condemn us,” Mr Morris said. “But over many years policymakers themselves have failed to highlight adequately the cost to consumers of the policies they have pursued in Government. They can’t expect to have power stations replaced with new technologies, the network to be upgraded and nationwide energy efficiency schemes all to be funded for free.”

But the Energy Secretary Ed Davey said the cost of wholesale energy far outweighed the proportion of the bill that goes on levies. “This is clearly unwelcome news for customers,” he said.

Martin Lewis, founder of the MoneySavingExpert website, said customers should not switch to another firm that might announce price rises in the near future. “The most important thing to understand is that the Big Six energy companies are like sheep – where one goes, the rest will almost certainly follow in the next three months,” he said.

Ed Miliband said SSE’s announcement showed why there needed to be an energy bill freeze.