Households are to be spared the full force of recent bill hikes after power firms pledged to pass on savings from a Government shake-up of energy levies.

The move comes after the Government announced a raft of measures to reduce the impact of social and environmental programmes on bills. It says they will save the average dual fuel customer £50 a year without reducing help to vulnerable households or sacrificing green commitments (join our free Cheap Energy Club to get the best deal for you).

Green levies currently make up about 9% (£112) of energy bills. Some suppliers blamed these levies when they raised prices this winter. All the big six energy suppliers, barring E.on, are upping or have already raised gas and electricity prices this winter.

To reduce the cost of green levies, the Government says it will:

  • Cut the cost of the Energy Company Obligation (ECO), an insulation scheme delivered by major energy suppliers. This should shave £30-£35 off bills on average next year.
  • Fund a rebate on the Warm Homes Discount (WHD), which will save the average customer £12 on their bill for the next two years. The WHD helps those in fuel poverty, and is currently paid for by electricity customers. It will now be met by the taxpayer.
  • Electricity companies will also take voluntary action to reduce network costs in 2014/15, funding a one-off reduction of around £5 on electricity bills.

The proposals will be consulted on early next year, although the Department of Energy and Climate Change (DECC) says it expects energy providers to pass on the savings as soon as possible.

Will the big six providers pass this saving on? asked the big six energy suppliers whether or not they'd be passing on the Government's savings. All will pass on the WHD rebate, although other details are less clear or vary by company. Here's what they said:

  • British Gas will pass on all three elements of the Government's savings onto all existing customers, including those on fixed deals, from 1 January. The savings will also be passed onto tariffs being sold from the same date. It says an average dual fuel customer will save £53 as a result.
  • EDF will pass on the savings made from the WHD rebate onto all of its customers, including those on fixed deals. It says the saving will also be passed onto its tariffs on sale from the same date, although prices won't change. It's yet to set a date for this. ECO and network savings won't be passed on as EDF says it factored these in when it announced a 3.9% price rise this winter, smaller the other big six suppliers.
  • E.on will pass on the WHD rebate to all customers, including those on fixed deals, although it's yet to decide when this will take place. It also hasn't decided whether it will also be passed onto tariffs being sold from then onwards. It is yet to announce if the other two savings will be passed on.
  • Npower will pass on all three elements of the Government's savings onto all households, including those on fixed tariffs. Savings will also be passed on to tariffs currently on sale. A date hasn't been set yet.  
  • Scottish Power will pass on all three elements of the Government's savings onto variable and prepay customers only. Fixed electricity customers will only get the £12 WHD rebate. These savings will be passed on in "early 2014". Scottish Power is also yet to confirm whether tariffs on sale from then onwards will incorporate the savings.
  • SSE says all three elements of the Government's savings will be passed onto variable and prepay customers before April. It's reviewing whether or not to pass the savings onto those with a fixed deal. Savings will also be passed onto tariffs currently on sale. energy analyst Archna Luthra says: "We welcome the moves by the Government to cut energy bills without compromising insulation help for the vulnerable. But let's remember, this just means we'll see smaller price rises than first announced. These aren't price cuts and are short-term relief only.

"Many are still having to choose between heating and eating. Suppliers should pass on the savings immediately to ease the pain for those that are struggling.

"It's good to see those that were savvy and grabbed a cheap fixed tariff in the last few weeks won't be excluded from the price cuts.

"If you haven't already, you should urgently consider grabbing a cheap fixed tariff – many can save and lock in prices long-term, even up to four years."

Martin Lewis
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'Working hard' to reform market

As part of the package of changes, the Government says homebuyers could get up to £1,000 to spend on important energy-saving measures – equivalent to half the stamp duty on the average house – or up to £4,000 for particularly expensive measures. 

The scheme will be available to all people moving house, including those who don’t pay stamp duty, which the Government says will help around 60,000 homes a year, over three years.

Energy and Climate Change Secretary Ed Davey says: "Energy bills are a big concern for many people, which is why we've been working to reform the energy market, increase competition and make it easier for people to shop around and switch supplier. Today's announcement confirms a serious, workable package which would save households around £50 on average.

"Today's package also ensures that energy companies are not off the hook. They will keep up their efforts to help people in fuel poverty cut their bills by making sure their homes leak less heat, and they will have to be more transparent about what they're spending on social and environmental measures.

"Next year, our competition test will forensically examine what more we can do to get prices down through ferocious competition. This won't affect our commitment to tackling dangerous climate change through reducing Britain's CO2 emissions, which will be backed by £540 million in new investment to make sure Britain's homes and public sector buildings are more energy-efficient, permanently reducing their bills."

Additional reporting by Marcel Le Gouais.

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