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The government rides to the rescue of the Big Six on the backs of the fuel poor

The planned cuts to the Energy Company Obligation will undermine the fight against fuel poverty.

British Gas branding on the entrance to Leicester's Aylestone Road British Gas Centre. Photograph: Getty Images.

The BBC reports today that the government is planning to cut annual costs of the Energy Company Obligation (Eco) in half as part of a package to reduce energy bills by £50. The Eco is more of a social policy than a carbon policy and is intended to tackle fuel poverty. Energy efficiency is the best long-term route to addressing rising bills since it permanently reduces energy demand. But the Prime Minister regards it as "green crap" so it is in the firing line in George Osborne's Autumn Statement.

By stretching the deadline from 2015 to 2017, and therefore halving ambition, the move means that around 40,000 homes who were entitled to free energy efficiency improvements will miss out this year and next. Equally worryingly, the Green Business Council estimates that 10,000 jobs will be lost as a result of the government's announcement. Until now, the policy had been a major driver of job creation all around the country.

The move also lets the worst performing companies off the hook. British Gas have only delivered up to 9% of the measures they were expected to carry out by March 2015 year while the best performer, E.ON, have done up to 74%. The former are being rewarded for coming bottom of the class.

This is not to say that there aren't problems with the scheme. At present, the policy is poorly targeted with only 20 per cent of measures going to those in fuel poverty. The remainder are received by low income households with relatively lower energy bills. In a major new report, IPPR proposes a new 'Help to Heat' scheme to tackle energy bills without lowering ambition on fuel poverty.

We propose a new 'house by house' approach of free assessments to determine whether households are in fuel poverty or not. Those that are would be entitled to free measures ensuring that 197,000 fuel poor homes were treated every year - up from 80,000 at present, or just 40,000 if the scheme is halved. Those that are not would receive an energy efficiency assessment - worth £120 - for free.

These households could use this information to take out a Green Deal loan and have energy efficiency measures installed. But as Newsnight highlighted last night, the government has achieved only 1 per cent of its target suggesting that, with interest rates of 8 per cent, the policy is failing. IPPR suggests using some of the Eco money to subsidise the cost of Green Deal loans turning it from a good deal to a great deal. It would cost the government just £16.7m to provide zero per cent loans for 200,000 households. These families and individuals would save £136 per year on their bills.

But all this looks like wishful thinking as the government have caved to the demands of the energy companies. Instead of improving its own policy, the government is riding to the rescue of the Big Six on the back of the fuel poor.