Grant Shapps has signalled the government will U-turn on its planned hydrogen levy on energy bills.
The annual levy, estimated to add about £118 a year to already soaring energy bills, had been expected to be introduced in 2025 via the energy bill going through parliament. The fee was intended to cover the cost of producing the low-carbon gas instead of polluting fossil fuels.
But the energy security secretary has now said he does not support a “levy directly on households”, signalling a possible U-turn as households struggle with high inflation and this week’s shock interest rate rise. Instead, he said, it should be paid for “further up the chain”.
“What we need to do is make sure that, A, we can get our hydrogen industry up and running. Really, really important, massive export opportunities, great way to store energy, great way to power heavy industry and what have you,” he told the Daily Telegraph.
“And, B, I don’t want to see people’s household bills unnecessarily bashed by this.”
The thinktank Onward has estimated the levy would increase energy bills by about £118 a year for the average dual fuel household.
Shapps said he supported other ways of moving towards cleaner energy and net zero, which he said could include passing the costs on to the energy industry or general taxation.
The law’s wording would ensure the cost would not be applied directly to bills, he said.
“The fuss was because there was a clause in the energy bill which would take powers to [impose a hydrogen levy], though not actually legislate,” he told the newspaper. “But I’m going to make sure that, whatever that clause is, it makes it clear that’s not a levy directly on households. The way that’s funded will have to be further up the chain.”
Discussions between his department, No 10 and the Treasury aim to reach a conclusion on the new approach, according to the Telegraph, with an alternative funding scheme hoped to be agreed before the parliamentary recess next month.
The hydrogen levy plans prompted a backlash from within his own party and opposition MPs, who fear further bill increases amid the war in Ukraine and the cost of living crisis.
Labour claimed the move was an attempt to avoid a Tory backbench rebellion.
Alan Whitehead, a shadow energy minister, said: “This is yet another humiliating U-turn for Rishi Sunak, showing that his government is completely out of touch with reality.
“During a cost of living crisis, millions of families are already struggling to make ends meet and yet the government have been doggedly pursuing these regressive levies for months, only to finally back down over fears of a rebellion from their own backbenches.”
He said Labour would instead overhaul Britain’s “broken” energy system and “deliver the green transition we so desperately need, energy security and bills that are affordable”.
