Q&A: How is the energy green levy shake-up going to affect your bills?

Households should see an average saving of around £50 a year on their energy bills following changes made to social and green levies by the Government.

:: What is happening?

The Government is proposing a raft of measures that it claims will lower energy bills without sacrificing green commitments or reducing help to vulnerable households. This will mainly be through diluting and extending the Energy Companies Obligation (ECO) by two years to March 2017, and funding the Warm Homes Discount out of tax rather than a levy on energy bills.

:: What are these schemes?

The Warm Homes Discount offers eligible pensioners £135 off their energy bills every year. The ECO programme was introduced last January to force energy companies to give low income households free insulation and is worth about £1.3 billion every year. It also contains obligations to ensure suppliers upgrade more hard-to-reach low-income households in rural areas.

:: So how will the ECO be diluted?

Energy firms will not be required to install so much expensive solid wall insulation in homes that are hard to reach. Instead they will be allowed to insulate more easy-to-treat cavity walls and lofts to meet their obligations. They also have an extra two years to meet ECO requirements under the plans.

:: How will this impact the average household?

As energy firms pass on their savings, the Government expects the ECO changes to cut £30-£35 off bills for the average customer next year. Its Treasury-backed rebate on the Warm Homes Discount will account for £12.

Along with an extra £5 reduction to come from electricity distribution firms reducing their network costs in 2014/15, the Government believes households will see an average saving of £50 a year.

:: What have the energy companies said in response?

The majority of the Big Six energy firms increased prices over the autumn, so today's measures should help reduce some of that impact. British Gas has already confirmed an average £53 reduction in New Year, while Scottish Power said it agreed with Government estimates which suggest total savings for households of around £50 for a typical dual fuel customer. However the outlook for bills in 2014 will still depend on whether there are increases in wholesale energy prices or other costs outside the control of energy suppliers.

:: What else is the Government doing?

As well as adjusting existing schemes, the Government is proposing new green measures to ensure its overall approach is carbon neutral. Its incentive programmes will target home-movers, landlords and public sector buildings and are worth £540 million over three years.

PA