Gas bills to rise to support net zero efforts

The government has signed off controversial plans to remove extra charges on electricity bills and slap them on gas supplies instead, according to reports.

The Heat and Buildings Strategy has finally been signed off by ministers and will be published before COP26, according to Kwasi Kwarteng, speaking on Times Radio over the weekend. But it will not take immediate effect.

“What I can guarantee is, for the short term, there will be no increase in the gas levy, there will be no more imposition of costs on people using gas,” he said, claiming that with more renewable and nuclear electricity, “we will actually have cheaper energy costs over time”.

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The redistribution of policy costs – used to fund green measures such as renewables subsidies – will be phased in over ten years, according to a leak reported in the Times newspaper. Quoting internal government estimates, it said that gas bills will rise by about £170 in due course.

The strategy will commit the government to reducing the cost of electricity. As the power system is decarbonising rapidly, on its way to zero emissions by 2035, having extra policy costs put on clean energy no longer makes sense, in the way it did when coal was a major player.

The change is expected to begin in two years’ time, so will not affect household or industrial bills this winter or the next. The cash raised will also be diverted to providing incentives to come off gas and move to electrified heating, particularly heat pumps.

But amid record wholesale prices for natural gas, the announcement that the government plans to make it more expensive could not come at a more sensitive time. It is also vulnerable to misinterpretation, with many people on Twitter complaining about it while unaware that the policy would be cost neutral for most households and is not being introduced for some time.

An unnamed minister told the newspaper that the plans were “madness” and that Downing Street was failing to appreciate “the reality of the problem we’re facing with energy prices”. Industries are warning of closures and price rises as they struggle to cope with the massive increase in the cost of gas.

As Conservative MP Craig Mackinlay said: “This plan should be discounted and discarded immediately. We are rapidly approaching energy poverty in this country. This would only add to it.” Aside from being a former deputy leader of UKIP, Mackinlay also heads the head of the Net Zero Scrutiny Group of more than 40 Tory MPs, described as a “misinformation and propaganda campaign” by Grantham Research Institute on Climate Change and the Environment policy and communications director Bob Ward last month.

The transfer of policy costs had been widely expected for some time but was kept back from being confirmed due to such concerns, which may now be misplaced.

According to a survey of 2,000 people conducted by PR firm Public First on behalf of the European Climate Foundation (ECF), published on Friday. Rather than hold back, the public want the government to move faster on phasing out gas boilers, with half supporting plans to ban their sale and only a quarter opposing it.

A total of 37% of the 2,000 people surveyed said that they would install a heat pump today if it significantly reduced their emissions, even if it cost a £1,000 more than a boiler. “That's a pretty big deal and indicates a lot of latent demand out there for heat pumps,” said ECF senior associate Amy Mount. “The most straightforward way for the government to turn that appetite into sale would be to provide grants to help cover the additional costs,” she added, a policy supported by three quarters of those polled.

The strategy is also expected to confirm that all new and existing gas boilers will be phased out by 2035. Ministers expect unit costs to halve within three years and hit parity with the cost of gas boilers by the end of the decade.

The objective will be apparently supported by a £400m scheme providing £5,000 grants for an air-source heat pump (ASHP) or £6,000 for a ground source model – generally more powerful but more complex to install.

However, such a fund will barely scratch the surface of the investment needed. It would only be able to support 80,000 of the poorest households to switch from gas to an ASHP – about 0.3% of the 27.8m in the UK. Much of the costs will therefore be shoulders by householders.

The planned levy should not be confused with the similar-sounding Green Gas Levy. That will apply from April 2022, to be paid by suppliers of fossil gas to help drive production of biomethane.