Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 20 - 23)



  Q20  Chairman: You have written some very good material about the social impact of environmental taxes and the crunch point for the Government. You mentioned that a carbon tax on household energy would be politically problematic at best and probably unfeasible. What is your view on assisting low income households which according to your research would be the losers if there was a carbon tax?

  Professor Ekins: That is not quite correct, in the sense that the research we did showed that there is a very wide range of energy use even among very low income households and it is therefore very difficult to compensate all of them, even if one redistributes all the revenues from the carbon tax, including revenues from non-poor households. But what it showed was that one could certainly have a redistribution scheme which meant that 80% of those households were no worse off, and many low income households would be much better off under that redistribution scheme than the status quo. It is therefore a political judgment.

  Q21  Chairman: But one would need to have compensation for poor households, would one not?

  Professor Ekins: Yes, but one can have such compensation through the social welfare mechanisms that currently exist in order to ensure that at least 80% of low income households are not worse off than they currently are, and some would be much better off. It is then an issue as to whether the effects on the 20% of low income households, which currently are very high energy using—each household uses six to 10 times as much energy as others in the same income decile—should be allowed to thwart the policy as a whole both on environmental and social grounds because one could make the other 80% of households that much better off. One of the matters that is changing over time with the various energy efficiency policies that are being put in place is that increasingly low income households do not need to use all this energy in order to keep warm, because the energy efficient commitment and Warm Front policies are very substantially improving the thermal quality of households, especially low income households, on whom these schemes tend to be targeted. Over time the hope is that these potential regressive effects would be easier to remove through compensation schemes and that would make some kind of carbon tax more feasible politically than it currently is.

  Q22  Chairman: It seems quite complex, and perhaps that is the reason it has not appeared on the political agenda at the moment. You mentioned a climate change surcharge imposed on households that failed to implement within a year cost-effective energy efficiency measures identified by the audit. How would that scheme effectively abolish fuel poverty?

  Professor Ekins: We also recommend that those who are in fuel poverty would have those measures paid for, as indeed they do at the moment through the Warm Front scheme. In a sense one would hope that it would make those households more likely to come forward and ask for assistance to improve the thermal efficiency of their homes than they do now. Most households in fuel poverty qualify for free insulation and household improvements; it is just that lots of them do not ask for it and so do not get it.

  Q23  Chairman: In a word, what should government do? Government seems to be timid in this area, does it not?

  Professor Ekins: It is certainly timid on the pricing side of it. On the home energy efficiency side it has proved to be much less timid because we have big home energy efficiency schemes that are orders of magnitude greater than anything we saw in previous years. But we need a statement that the entire housing stock will be upgraded overtime and that in due course price instruments will be used in order to ensure that households become more aware of the real cost of energy, but that those who are in fuel poverty will have the necessary cost paid for them in order to bring their houses up to scratch. I emphasise the anomaly that the UK represents internationally in this regard. Other north European countries routinely have 15% to 25% VAT on household use of energy, plus any carbon or energy taxes that they may have decided to introduce. The energy use of households is high here not only because of lower thermal efficiency but also because of the price tends to be rather lower than it is there.

  Chairman: Professor Ekins, thank you for your excellent evidence in starting off this inquiry; it has helped us enormously.

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