What is the green levy which adds £153 to your energy bill?

·4-min read
There have been calls to scrap the so-called green levy attached to energy bills. (PA)
There have been calls to scrap the so-called green levy attached to energy bills. (PA)

With energy bills soaring by 54% for the average household this month, the government is coming under mounting pressure to help families struggling to keep up with their payments.

Bills are set to rise again in October when Ofgem renews the energy price cap, leading to warnings from fuel bosses that the country is heading for a "truly horrific winter".

Amid these dire predictions, Boris Johnson is facing calls from his MPs to scrap the so-called “green levies” attached to energy bills.

The PM has so far rejected calls to drop the levy, which adds £153 to the average annual energy bill.

But what is it and what is the money used for? Here, Yahoo News UK explains all.

What is the green levy?

The green levy is an environmental charge added to energy bills.

Ofgem, the gas and electricity regulator, calls it a “social and environmental obligation” which is used to pay for government energy policies.

The money goes towards schemes such as supporting energy efficiency improvements in homes and businesses, helping vulnerable people and encouraging take-up of renewable technology.

The levy is one of numerous charges which make up an annual energy bill. The other main ones include wholesale costs (what you pay a supplier for energy to be brought to your home), network costs (for the gas pipes and electricity cables that carry energy to your home) and operating costs (such as meter maintenance and installations).

A breakdown of the average annual energy bill. The green levy currently accounts for about 8% of a total bill. (Yahoo News UK)
A breakdown of the average annual energy bill. The green levy currently accounts for about 8% of a total bill. (Yahoo News UK)

The levy currently adds £153 to the average annual energy bill of £1,971: about 8% of the total.

It has not increased since Ofgem raised its price cap by 54% - causing the average bill to rise £693 from £1,277 to £1,971 - at the beginning of this month. In fact, Ofgem figures show the green levy is at its lowest rate since winter 2019/20, when it was £146.

Why are Tory MPs calling for the green levy to be scrapped?

Last month, chancellor Rishi Sunak announced a package of mitigations against the cost of living crisis. This included a £200 up-front rebate on energy bills from October – though this will have to be repaid over five years from 2023 – plus a £150 council tax rebate for homes in bands A to D from this month.

However, the policies were widely criticised by a number of Tory MPs as not going far enough.

On Thursday, Jack Leslie, senior economist at the Resolution Foundation, told Yahoo News UK the nation is heading for a "major recession for households" as people see a "substantial" fall in their real incomes.

Watch: Millions face fuel poverty, energy bosses warn (from Tuesday)

Read more: Cost of living crisis: How consumers are cutting spending

The levy has been opposed by green-sceptic Tories in recent months, including the Net Zero Scrutiny Group.

Robert Halfon, a senior MP on the Tory backbenches, told the Telegraph the levy is a “millstone around people’s necks”.

“You can’t balance environmentalism on the backs of working people,” he said.

What has the government said about the green levy?

Earlier this week, business secretary Kwasi Kwarteng failed to dismiss reports that the government is considering scrapping the charges, amid Tory backbench pressure.

Boris Johnson issued a firm rejection of the calls to scrap the levy on Thursday.

NEW DELHI, INDIA - APRIL 22: Britain's Prime Minister Boris Johnson speaks during a press conference on April 22, 2022 in New Delhi, India. During his two-day visit to India, Boris Johnson is expecting to seal new collaborations on defence and green energy as he seeks to reduce the country's dependence on Russian fossil fuels and military equipment. (Photo by Ben Stansall - WPA Pool/Getty Images)
Boris Johnson, pictured on a visit to New Delhi, India, on Friday, has rejected calls to scrap the green levy. (Getty Images)

In an apparent swipe at his green-sceptic Tory colleagues, Johnson said it is “very important to understand” that there is “a lot of prejudice against the green agenda”.

“Actually green technology, green, sustainable electricity can help to reduce bills,” he said.

“Overall, if you look at what we have done with renewables, it has helped to reduce bills over the last few years and will continue to do so.”

The PM also repeatedly resisted ruling out extra measures to support families with soaring living costs before the autumn, when the energy price cap is expected to rise again.