A recent study by the Centre for Sustainable Energy and the Association for the Conservation of Energy (ACE) has found that the impacts of the government's Low Carbon Transition Plan will hit poorer households harder in real terms.
The study pursued four main lines of enquiry:
- What needs to be done to UK housing, in terms of sustainable energy deployment, in order to meet the target of 15% reduction by 2020.
- The proportion of this target to be met by renewable heat, renewable power and energy conservation.
- The range and size of technology required.
- The cost of meeting these targets and how these costs are recovered through domestic energy bills, income tax or a financial transaction tax.
The study found that if the costs are recovered through domestic energy bills, the average household energy expenditure in 2020 will increase by £103 (assuming an existing figure in 2020 of £1,154) representing a rise of 8.5%. In general, because the poor tend to spend more of their household income on energy, this will hit poorer households harder.
If, however, costs are recovered through income tax, the figure will decrease by £193 (16%) as households benefit from insulation and micro-renewables but don't pay for these through energy bills. This will, however, mean a decrease of £309 in annual household income as the average household will be £116 worse off. Under the income tax regime, poorer households will see a surplus of £96 as they pay less income tax, that is to say their savings on energy will compensate for the loss in household income. One of the reports authors, CSE's Ian Preston commented that the research "appears to show that the use of energy bills to recover the cost of climate change policies is more regressive - it hits the poor harder than the rich - than the taxation route". Preston also stated that the use of income tax to recover costs would be unlikely under the present economic circumstances and that therefore if energy bills are used, then this should be done as quickly as possible. His recommendations are that firstly no one fuel should be burdened by recovery costs (for example piling the costs on electricity will hit the poor hardest), secondly expenditure on measures should be implemented according to the householder rather than the house and thirdly tariffs should be designed to penalise high consumers while protecting the vulnerable.
The report, entitled The Distributional Impacts of UK Climate Change Policies is available on the CSE website (see link above)