A £500 million a year charge on energy suppliers to lift 500,000 people out of fuel poverty will be considered by MPs this week.

The levy on utility companies would fund a massive investment programme to insulate half of all homes in England, cutting household carbon emissions by 20% and knocking £200 a year off the bills of 10 million householders.

The proposal is set out in an amendment which Alan Whitehead MP has tabled as part of the Climate Change Bill. The amendment, expected to be discussed at committee stage today, has the support of the Lib Dems, and the proposals are backed by the Conservatives.

The idea of an annual charge on energy suppliers to fund a massive drive on home insulation was first floated by the Local Government Association (LGA) in mid-March. The LGA called for utility companies to match pound-for-pound the £33 per household that customers already contribute each year to an existing national scheme to insulate homes.

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The cross party organisation, representing more than 400 councils in England and Wales, says that a windfall tax to provide a one-off payment to help people struggling to pay their bills would neither provide a long term solution to fuel poverty nor encourage householders to use energy more efficiently. The proposed scheme, which would take at least five years to complete, would be led by councils and monitored by Ofgem to ensure that the annual charge on energy suppliers was not passed on to consumers.

Mr Whitehead said: "Reducing use of energy in domestic buildings is going to be a key element in staying within our national carbon budgets over the next fifteen years. Getting Local authorities and energy companies to work together and match consumers contributions will be a very effective way to achieve lower energy use and better efficiency. My amendment represents a straightforward way to underpin the targets and mechanisms in the bill with a way of making them happen at local level."

(CD/JM)