Co-operative Energy is reducing its price hike from 4.5% to 2.5% in response to expectations the Government will reduce green taxes on energy bills.

Co-op announced last month that all 127,000 customers on its variable Pioneer tariff would be hit with average price rises of 4.5% from 8 January (see the Co-op Energy to increase prices by 4.5% MSE News story).

But it now says prices will rise by a smaller 2.5%, which it says is in response to the "clear indication" the Government has given that it will remove the mandatory Energy Companies' Obligation (Eco) charge on gas and electricity bills. (Join our free Cheap Energy Club to find the best tariff for you.)

David Cameron's plans to "roll back" green levies, which currently make up around 9% (£112) of energy bills, are due to be released in Chancellor George Osborne's Autumn Statement on 5 December.

However, Co-op warns that if it has "misread the signals" and the charges remain in place for next year, it says it "will have no alternative but to review this decision".

Also today, big six energy provider Scottish and Southern Energy has said it will reduce its bills if the levies are cut, telling BBC Radio 5 Live that prices would definitely come down as a result, "no ifs, no buts".

Rising bills

Co-op's move comes as the National Audit Office (NAO) said consumers face another 17 years of above-inflation increases in energy and water bills as households are forced to stump up the cost of renewing the UK's ageing infrastructure.

It said the Government had little idea of the impact the continued price hikes would have on households or whether they would they would even be affordable, particularly for those on the lowest incomes.

The Treasury estimates at least two-thirds of the £310 billion of planned investment over the next decade and beyond will come from private companies paid for, ultimately, by consumers through their utility bills.

The NAO's findings will intensify the political debate raging over energy bills, with the Government under pressure to act after Labour promised a 20-month price freeze if it came to office.

All of the big six energy providers, barring E.on, have already confirmed plans to hike gas and electricity prices this winter.

Additional reporting by the Press Association.