George Osborne to abolish coalition’s green tax target as customers face paying £1.5billion more through their bills to subsidise wind farms, solar panels and biomass plants
George Osborne, the Chancellor, will give his first Tory Budget this week
The cost of subsidising new wind farms is spiralling out of control, government sources have privately warned.
Officials admitted that so-called “green” energy schemes will require a staggering £9 billion a year in subsidies – paid for by customers – by 2020. This is £1.5 billion more than the maximum limit the coalition had originally planned.
The mounting costs will mean every household in the country is forced to pay an estimated £170 a year by the end of the decade to support the renewable electricity schemes that were promoted by the coalition.
Tory ministers are said to be “angry” at the scale of the over-running costs. They are blaming the Liberal Democrats who ran the Department for Energy and Climate Change for the past five years for the spectacular failure to control renewable energy programmes.
The huge excess spending is thought to be a result of higher-than-expected numbers of rooftop solar panels being fitted on houses, falling wholesale energy prices, and offshore wind farms proving more productive than anticipated.
The Chancellor believes the figures demonstrate the need to rein in the cost of policies to tackle climate change.
As a first step, he will use this week’s summer Budget to announce that he is abandoning targets set under the coalition to increase the level of environmental taxes in a move he hopes will save customers and businesses billions of pounds.
The Chancellor’s action forms part of a package of measures to boost economic growth and cut the deficit, in the first Conservative-only Budget since 1996, when Kenneth Clarke was Chancellor in John Major’s government. […]
This Budget will be Mr Osborne’s first opportunity to exercise complete control over setting environmental tax rates, and subsidies for wind and solar power, without being constrained by Liberal Democrats.
Under the coalition, ministers decided that investment in new renewable energy developments, such as wind turbines, solar panels and biomass schemes, would be paid for by energy companies, rather than through taxation.
Energy firms were allowed to recover the cost of these subsidies from their customers by adding it to household bills.
In order to limit the impact of the green schemes on customers, ministers set a strict cap on the total amount that could be spent in these consumer-funded subsidies for renewable energy.
By 2020, the maximum amount to be spent through these subsidies was set at £7.6 billion a year. But new projections from DECC show this cap will be exceeded by a massive 20 per cent, or another £1.5 billion.
Official figures showed that environmental levies added £68 to the average household bill last year. By 2020 this had been expected to rise to £141. But the latest DECC figures suggest the true figure will be closer to £170 as costs continue to mount.
Government sources say there is little that Mr Osborne can do because the subsidies have already been agreed under long-term contracts signed by DECC while Liberal Democrat ministers were in charge.
However, the Chancellor will review the system to see whether further steps can be taken to cut the cost of climate change schemes such as the subsidies, sources said.
In previous years the Chancellor has tried to help businesses cope with punitive environment policies in Britain and across Europe by providing tax relief. He has warned that forcing steel mills and aluminium smelters to shut down and relocate outside Britain will not help “save the planet”.
However, in coalition, DECC was run for five years by Liberal Democrat ministers, firstly Chris Huhne, and then Ed Davey, while Nick Clegg, the party leader was passionately committed to protecting the environment.
In Wednesday’s Budget Mr Osborne will abandon the coalition’s target to increase the proportion of taxation raised from key environmental taxes, such as the Carbon Price Floor, charged on fossil fuels, and the Climate Change Levy, which businesses pay on their energy use.