Energy costs 'netted Treasury £1bn'

2:08am Saturday 6th September 2008

Rising fuel costs have provided the Government with a windfall of as much as £1 billion from a scheme designed to promote renewable energy, it has been reported.

The revelation comes as Prime Minister Gordon Brown comes under pressure from Labour backbenchers to impose a windfall tax on "excessive" profits made by the energy companies.

Ministers are due in the coming week to unveil a package of measures to help consumers deal with soaring fuel prices, but efforts to persuade the power giants voluntarily to fund a cash handout to vulnerable households this winter appear to have come to nothing.

There have been calls for the money received by the Treasury from the Non-Fossil Fuel Obligation scheme to be used to help families with energy efficiency measures such as home insulation.

The NFFO was set up in the 1980s to encourage the development of renewable energy generation plants by offering a guaranteed price for their electricity for 15 years. It has since been replaced by the renewable obligation scheme.

It operated at a loss for many years, but the recent dramatic increases in energy prices have led to NFFO producing a surplus, which is held by energy regulator Ofgem before being passed on to the Treasury.

The Guardian reported that the Treasury had taken payments totalling £585 million out of the fund, while another £218 million is being held by Ofgem in the scheme's account. A further £200 million is expected to be generated by the scheme this year, the paper said.

Shadow energy minister Charles Hendry accused the Government of using the scheme as a "stealth tax", telling The Guardian: "If you're going to tax environmental issues, that money should be used for very specific projects for [the] environment, or else to help reduce taxes on families, but this seems to be going into a general pot.

"Certainly it would be in the spirit of it if the money was being used to deal with insulation and energy conservation."

Laura Schmidt, spokeswoman for the Association of Electricity Producers, which represents energy companies, said: "The money that's accumulated was collected with the purpose of achieving environmental ends, and in this regard particularly achieving renewable energy targets, so we think it should be used for that purpose."

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