Industry calls for action on electricity taxes

UK: Over 120 organisations are urging the UK government to reduce taxes on electricity, warning that high electricity tariffs risk business closures and job losses, while raising the cost of living.

The signatories to a letter to the chancellor of the exchequer, co-ordinated by climate change think tank E3G and Energy UK, the trade association for the energy industry, call on the government to reduce taxes on electricity in the autumn budget.

It highlights that the UK’s energy costs are some of the highest of any developed nation, and 70% higher now than they were in 2021. It notes that this has been a significant contributor to household energy debt rising towards £7bn and caused over 40% of British businesses to cut investment.

While accepting that energy bills remain high due to both high gas prices and non-fuel costs placed on bills, it argues that non-fuel costs such as government levies also contribute a significant proportion of the bill. 

In addition to companies in the energy sector, the letter has been signed by a broad range of organisations, from consumer groups like Which? and Age UK, businesses including Nationwide and the Co-op, and associations representing sectors across the entire economy, including the CBI, MakeUK, techUK, the British Beer & Pub Association, British Retail Consortium, National Housing Federation, Food & Drink Federation and UK Hospitality. 

The Federation of Environmental Trade Associations, the Energy Saving Trust and HPA UK are also among the 123 signatories, along with heat pump manufacturers Mitsubishi Electric, Vaillant, Kenza, Glen Dimplex, Worcester Bosch, Daikin, Nibe, Qvantum and Star Refrigeration.

Despite the announcements of a VAT cut on domestic electricity and a more substantive electricity discount announced last year, they point out that taxes still make up a tenth of the electricity bill for domestic consumers.

The signatories claim that the tax discounts have not gone far enough, and the government has done little for businesses. They argue that existing and incoming business electricity price discounts are limited to a small set of industrial and manufacturing firms, who greatly need the support but only account for 10% of non-domestic electricity consumption and less than 1% of the total number of companies.

The letter highlights that moving levies to the exchequer would lower business electricity prices by up to 20% and bring the total average household energy bill reduction to as much as £250 a year (when including the previous intervention in the 2025 budget). 

This would deliver considerable economic benefits, boosting business investment and reducing inflation by 0.3 percentage points, which would save the government billions of pounds in future borrowing costs and inflation-linked spending. It would also significantly accelerate electrification of energy demand, which is critical to enhancing the UK’s energy security. Previous analysis by PwC found reducing electricity prices to the G7 median could drive an additional £250 billion of economic output over the next decade.

“The UK is actively sabotaging its own efforts to bring down energy costs by taxing electricity. Any credible plan to tackle the cost-of-living and enable re-industrialisation needs to include removing these taxes from bills to the exchequer,” said Ed Matthew, director of UK programme at E3G.