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The Levy Control Framework

In establishing the Levy Control framework, the Government has rightly recognised the importance of monitoring and controlling the considerable cost of energy schemes that consumers fund through their energy bills, according to today’s report from the National Audit Office.

The NAO concludes that the Levy Control Framework is a valuable tool for supporting control of the costs to consumers that arise from the Government’s energy policies. The Framework has prompted the Department of Energy and Climate Change to monitor actual and expected costs to consumers from the schemes it covers.

However, the operation of the Framework has not been fully effective in some key areas. Spending and outcomes have not been linked in deliberations by the joint Treasury and departmental levy control board and reporting on Framework schemes has not supported effective public and parliamentary scrutiny of the overall costs and outcomes from levy-funded spending.

As consumer-funded spending on energy policies increases and new schemes are introduced, the Department needs to assure Parliament and the public that it has robust arrangements to monitor, control and report on consumer-funded spending, and the outcomes it is intended to secure.

A number of the Government’s energy schemes are funded through levies on energy suppliers, who pass on the cost to consumers in energy bills. In 2011, the Department of Energy and Climate Change and HM Treasury established the Levy Control Framework to monitor and control the cost of such levy-funded schemes against annual caps.

The spending cap under the Levy Control Framework is set to rise from £2 billion in 2011-12 to £7.6 billion in 2020-21 (in 2011-12 prices). By establishing this cap, the Department has provided greater certainty for investors. It has yet, however, to define clearly the future scope of the Framework.

The NAO’s report highlights that the Framework does not cover the consumer-funded Energy Companies Obligation scheme and that it is not yet clear whether it will cover the new Capacity Market including electricity demand reduction measures.

Notes for Editors

  1. Levy-funded expenditure is analogous to government spending. Levy schemes are approved by parliament and require electricity suppliers to meet their costs. Electricity suppliers recover these costs from consumers through bills rather than the government funding the schemes directly through general taxation. In 2011, the Department and HM Treasury established the Levy Control Framework to cap the cost of levy-funded schemes to ensure the Department "achieves its fuel poverty, energy and climate change goals in a way that is consistent with economic recovery and minimising the impact on consumer bills".
  2. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 860 staff. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of almost £1.2 billion in 2012.
  3. Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.

PN: 68/13