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Rachel Reeves has been told that cutting funding for home insulation at the budget would risk the UK’s climate goals and hurt low-income households in a joint intervention by energy firms, fuel poverty charities and environmental groups.
In a letter to the chancellor, more than 60 groups and companies urged Reeves not to take such a damaging “short-term fix” to slash funding for more energy-efficient homes to pay for a reduction in energy bills.
The Guardian revealed this week that Reeves is finalising a multibillion-pound energy support package that is likely to cut green levies paying for energy efficiency as she looks to save as much as £170 from the average bill.
In particular, the Treasury has been looking at cutting or getting rid of the energy company obligation (ECO), which pays to improve energy efficiency for low-income and vulnerable households.
In their letter, the dozens of organisations – from Age UK and Citizens Advice to Friends of the Earth – called for the Treasury to reconsider cuts to the ECO programme, saying it would “call into question the ability to meet both the UK’s fuel poverty and carbon budget targets”. They also warned that it was putting thousands of jobs at risk in the £20bn energy efficiency industry and supply chain.
“We welcome the news that you are planning to take action to cut households’ energy bills at the upcoming budget, which is crucial to address cost of living challenges and boost the economy,” the letter said.
“However, it is vital that this is not at the expense of investment in energy efficiency measures and low-carbon technologies, which permanently lower households’ bills. While direct bill support provides an immediate way to help struggling households, decarbonising homes through cost-effective upgrades is the best way to sustainably address fuel poverty and reduce costs for all billpayers.”
Their warning came after Keir Starmer attended the Cop30 climate conference in Brazil where he said the UK was “really stepping up” by showing leadership on tackling climate breakdown and creating green jobs.
Others who have signed the letter include Energy UK, the industry body representing Britain’s main energy firms, National Energy Action, Disability Rights UK, the Energy Saving Trust and Greenpeace.
In an interview with the Guardian, Darren Jones, the chief secretary to the prime minister, said he wanted to reassure people that the government would not be rowing back on its commitment to green issues and tackling the climate crisis.
Those consulted on the plans say the chancellor is particularly looking at reducing or eliminating ECO, under which energy firms help pay for home improvement measures such as insulation and new heating schemes. Last year, the National Audit Office warned of fraud and poor quality in some of the work carried out under the scheme.
If the programme is reduced or cut entirely, the energy secretary, Ed Miliband, could choose to reallocate money from the £13bn warm homes plan, much of which is earmarked to pay for subsidies for electric heat pumps. The government decided as recently as June to protect the scheme, but the chancellor is thought to be willing to see it reduced to help bring bills down. The government is separately considering removing 5% VAT from electricity bills to reduce costs.
James Dyson, a senior researcher at E3G, a non-profit that helped coordinate the letter, said the last time the ECO scheme was cut, 10,000 people lost their jobs and millions of families were “left in draughty homes paying astronomical energy bills” as a result.
“Cutting ECO could collapse the entire insulation industry, putting thousands of working people out of work in areas of the country that need good, skilled jobs and removing one of the best methods of permanently reducing energy bills for low-income families. It would also rob us of a key tool for lowering carbon emissions in this critical decade for climate action,” he added.
Dhara Vyas, the chief executive of Energy UK, also criticised the prospect of changes to the funding of home insulation and energy efficiency, saying it would be a “shortsighted and disastrous move”.
“We’ve had ample previous experience showing how knee-jerk cuts to investment in warmer homes have resulted in customers paying billions of pounds more on their energy bills, while also damaging supply chains and businesses with knock-on impacts to investment and job losses.”
Dr Doug Parr, Greenpeace UK’s policy director, said: “Slashing this funding would be the most counter-productive thing the chancellor could do in seeking to reduce energy costs.
“Government programmes are in desperate need of reform with stricter regulations to stop shoddy work by cowboy installers, but slashing it will leave millions of households in fuel poverty with cold, damp homes. These levies should not be cut, but paid for through tax, so those with the broadest shoulders pay a fairer share.”
Mike Childs, the head of science, policy and research at Friends of the Earth, said: “It would be a serious betrayal of struggling families for the government to cut the mandatory energy company insulation scheme in order to reduce energy bills. We need homes to be made warmer and energy bills to be cut if we’re to ease hardship and shield people from harm. The chancellor mustn’t give with one hand only to take with the other.”
A HM Treasury spokesperson said: “We do not comment on speculation around future changes to tax policy outside of fiscal events. The budget later this month will build stronger foundations to secure Britain’s future and focus on the priorities of working people: cutting waiting lists, cutting the national debt and cutting the cost of living.”
It was also reported last night that Reeves will announce a raid on tax breaks on pension contributions in a move that could raise up to £2bn a year.
There is currently no limit on how much an employee can pay into their pension before they pay national insurance but, according to a report in the Times, Reeves is expected to cap how much someone’s salary can be sacrificed without paying national insurance at £2,000 a year.
The change would mean employees pay 8% on any pension contributions above a certain level, prompting concerns that the cost could then be passed on to workers.
