U.K. power companies announced they will cut prices for consumers after Chancellor of the Exchequer George Osborne pledged to scale back government green levies to ease the cost of living.
Prime Minister David Cameron and Deputy Prime Minister Nick Clegg, writing in the Sun newspaper yesterday, promised to will cut the average energy bill by about 50 pounds ($82) per year by funding some of the costs currently included in energy bills.
Centrica Plc (CNA), the largest supplier to U.K. households, and SSE Plc (SSE) said today they would cut bills by an average of about 50 pounds a year in response to the government’s announcement. NPower, the U.K. unit of Germany’s RWE AG (RWE), said it would keep bills stable until 2015, barring a significant increase in the cost of wholesale electricity.
“We’ve been in discussions with the energy companies, but were pretty clear they’ve got to pass on any reductions the government puts on energy bills,” Osborne told the BBC’s Andrew Marr program yesterday. “I’m a believer in reducing taxes, reducing cost of government, and we can do that through energy bills.”
Energy bills have become a political focal point as Osborne prepares to present an Autumn Statement this week, in which he will say the Tory-led government’s austerity policies are paying off, while the Labour opposition claims living costs are outweighing the benefits of growth. Yesterday’s pledge on energy bills follows Labour party leader Ed Miliband’s September vow that he would freeze prices if elected.
Ed Davey, energy minister, told BBC Radio 4’s Today program that the government will invest 500 million pounds in energy efficiency. Cameron and Clegg said yesterday the government would provide as much as 1,000 pounds to new homeowners to spend on energy-saving measures. The full details of the plan will be announced in Osborne’s Autumn Statement on Dec. 5.
Osborne said a crackdown on tax avoidance would partially fund the cut in energy bills. Labour’s finance spokesman, Ed Balls, also speaking on the Marr program, said the plan, shifting from bills to taxes “is taking with one hand to give with the other.”
“People will still pay more,” Balls said. “Is there a price freeze? No. Are the energy companies paying? No.”
Miliband on Nov. 29 set out details of his energy policy, which includes splitting energy companies into supply and generation businesses. The Labour Party, if elected, would replace regulator Ofgem and create an Energy Security Board to ensure supply. It would also freeze prices for 20 months as pledged in September, to stem increases in household energy bills that are up 300 pounds a year since 2010.
Britain’s improving economy has sparked calls for Osborne to use any windfalls from faster growth to reduce taxes. The Chancellor indicated in October that he would use extra revenue from growth to reduce the deficit.
The Institute of Directors called for tax-cutting measures including reducing the capital gains levy, expanding the basic income-tax band and abolishing the 45 percent rate of income tax.
“The Chancellor has a little more fiscal headroom to introduce a package of affordable tax reductions,” Stephen Herring, head of taxation at the IOD, said in a report published today. “He should state clearly that authentic tax planning is perfectly acceptable and understandable for both businesses and individual taxpayers.”
For the first time since 2010, Osborne will this week present economic forecasts that are stronger than those made earlier in the year. Based on independent forecasts, growth this year will be more than double the 0.6 percent the Office for Budget Responsibility forecast in March, with the deficit in the fiscal year through March as much as 10 percent lower than estimated.
“The economic plan is working and a recovery is under way,” Osborne said. “In the Autumn Statement, I will say the job is not yet done.”
Osborne has said that if the Conservatives win the next election he would aim to achieve a budget surplus by 2020. Balls acknowledged yesterday that getting the budget back to surplus would be “the right thing to do,” though whether “we can do that depends upon the economy, of course.”
“What the BOE says, what I say is there is not a housing bubble at the moment,” he said. “But we want to make sure one doesn’t develop.”
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