Over 120 organisations call for hidden electricity tax to be removed

More than 120 organisations, including Energy UK and Age UK, are urging the Government to remove policy levies embedded in energy bills.

The organisations have signed a letter to the government warning that high electricity costs risk driving business closures and job losses, and exacerbating cost of living challenges, unless the government acts in the Autumn Budget to reduce taxes on electricity.

The letter, co-ordinated by E3G and Energy UK, 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 £7 billion and caused over 40% of British businesses to cut investment.

Energy bills remain high due to both high gas prices and non-fuel costs placed on bills. The conflict in the Middle East has pushed up gas prices considerably – at one point reaching a three-year high. However, non-fuel costs such as government levies also contribute a significant proportion of the bill. Therefore, the signatories call for the government to act on what it can control and would make a difference today – removing taxes from electricity.

The campaign has been picked up rapidly beyond the energy sector, demonstrating the range of organisations for which electricity costs are now a key concern. 123 organisations have signed the letter, ranging from consumer groups like Which? and AgeUK, 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 UKHospitality.

Over the last year, the government has introduced temporary, partial tax discounts for domestic households, but has not gone far enough, and has done little for businesses. The Prime Minister announced a VAT cut on domestic electricity on his second day in office. Whilst this was welcome, the respite is short-lived, with this measure set to end in April 2027. This built on a more substantive electricity discount announced in last year’s Budget, but this is also temporary and due to expire in 2029. Even with these interventions, taxes still make up a tenth of the electricity bill for domestic consumers.

And all of this offers nothing for businesses – who don’t benefit from either of the two discounts announced in the last year. 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.

Ed Matthew, Director of UK Programme at E3G, said “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 reindustrialisation needs to include removing these taxes from bills to the Exchequer. The scale of support for this letter shows that this demand has united the country. The Government must now act.”

Dhara Vyas, Chief Executive of Energy UK, said “High electricity prices hurt all of us. By taking levies off the bill, the Government can show it is serious about tackling fuel poverty and the cost-of-living crisis, growing the economy, and bringing down inflation. Cheaper electricity would have an outsized impact across the economy, encouraging the switch to electric heating, transport and industry and allowing households and businesses across the UK to feel the benefit of the successful rollout of clean power.”