Ministers’ £1bn plan to tackle fuel poverty is ‘bad joke’

Energy companies have attacked proposals to heap them with further taxes, potentially derailing an agreement over a proposed £1bn fuel poverty package, which the Government had hoped to announce this week.

The Government has been in talks with the "Big Six" utility companies – Centrica, EDF, E.on, Npower, Scottish Power and Scottish & Southern Energy – over a package designed to cut costs for five million poorer households. One called the proposals "a bad joke".

The talks continued over the weekend, and more are expected early this week, but the Government is yet to overcome opposition from several of the energy companies, who feel they are being punitively targeted as they all already pay millions of pounds to help alleviate fuel poverty. "No other industry contributes as much on social spending," one utility insider said.

One energy source rejected reports that the issue was over foreign companies worried about taxation from other European jurisdictions. "It has nothing to do that, the companies believe these propsals are unfairly penalising those that generate the power, as well as distribute it," the source said.

He said the plan to push companies to increase their carbon credits favoured Centrica most out of the "Big Six".

While most companies declined to comment on the record yesterday, E.on broke cover, as it reacted angrily to the proposals. A spokesman confirmed that the Government was "contemplating" a poverty package to lower the cost of electricity and gas for poorer people, but said: "Nothing has been decided yet, as you could ask the same for bread, petrol or housing. In a market economy this is more like a bad joke." He added: "There is a lot of opposition against this."

The government negotiations with the "Big Six" are being led by Baroness Vadera, parliamentary secretary at the Department for Business, Enterprise and Regulatory Reform and a former adviser to Gordon Brown at the Treasury. The industry is still expecting an announcement on Wednesday.

An official spokeswoman simply said the talks with the utility companies were ongoing yesterday. She added that the department had helped to increase the companies' social programmes, and was "looking at any other opportunities to help over fuel poverty". She denied that the Government was working to a timetable, and would not confirm that the poverty plan would be announced this week.

Reports over the weekend said the Government's plan would involve raising £750m from the utilities over five years, to be distributed to those in fuel poverty, adding further investment in carbon reduction, and an energy saving awareness campaign. This sum would in effect be a windfall tax on profits the companies have made from European emissions trading, one source said. This would be in addition to the companies trebling funding to £150m by 2011, agreed earlier this year.

Last week Npower and Scottish Power became the last of the "Big Six" to push through price hikes this year. Scottish Power is to raise gas prices by an average of 34 per cent, and electricity prices by 9 per cent. For Npower, gas will rise 26 per cent and electricity 14 per cent. The companies blame the rise in wholesale costs, which Npower said had doubled in the past 18 months.

Fuel poverty refers to those who must spend more than 10 per cent of their income to heat their homes. The latest hikes will push one in five households into the bracket, according to the National Energy Action fuel poverty charity. That figure has doubled in four years.

Eighty Labour MPs have signed a petition calling for a windfall tax on utilities' profits.