Re-think on energy charging could reduce bills for 70% of households

March 2, 2018, University of Leeds
Re-think on energy charging could reduce bills for 70% of households
Credit: Strecosa

Researchers have found that 70 percent of U.K. households would be better off if costs of government energy policy were removed from gas and electricity bills and applied according to household income.

Professor John Barrett and Dr. Anne Owen, both from the University of Leeds, propose alternative mechanisms for funding emissions reduction schemes. Their research, published today by the U.K. Energy Research Centre (U.K.ERC), highlights how it is possible to raise the necessary funds to address climate change, while also protecting fuel-poor households.

Currently, within the domestic sector, levies to recover the costs of policy are applied as a percentage of household energy bills. In 2016 these energy policy costs added 13 percent to the average household electricity and gas bills, adding £132 to the average yearly spend.

However, in the poorest homes, money spent on energy accounts for 10 percent of total spend, whereas for the richest households it accounts for just 3 percent. Applying energy costs on this spend therefore disproportionately penalises those that are most vulnerable to rising energy prices, the researchers say.

Total energy consumption measures all of the energy used to provide households with the products they buy and services they access, and incorporates aspects such as recreation activities, travel and imported products.

Professor Barrett, from the Sustainability Research Institute at Leeds and U.K.ERC Co-Director, said: "It is essential that climate change policies do not cause further inequality by penalising families with the lowest energy consumption and who are most at risk of fuel poverty. Progressive energy policies should ensure that those with the highest energy demand and the means to afford it, pay for the solutions."

The researchers found that in 2014, the richest 10 percent of households consumed almost four times as much energy as the poorest households or an average 12.7 tonnes of oil equivalent compared to 3.3 tonnes consumed by the poorest.

Energy for heating and power in homes accounts for only 12 percent of total energy consumption, highlighting the significant difference in spending patterns between high and low income households.

Dr. Owen, also from the Sustainability Research Institute and U.K.ERC researcher, said: "Our work shows that once you consider the hidden energy in the manufacture of all the goods and services we buy, it is only fair that richer homes contribute more to energy policy costs. Low income households, which experience fuel poverty, could be exempt from these additional charges if we re-think how low carbon energy schemes are funded."

Professor Barrett and Dr. Owen have put forward an alternative approach would place policy costs on businesses, or fund them through general taxation, both of which would reduce the burden on the poorest households. The general taxation approach would better align energy demand with policy costs, and would reduce costs for 70 percent of U.K. households.

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Eikka
3.4 / 5 (5) Mar 02, 2018
levies to recover the costs of energy policy are applied as a percentage of household energy bills.


That's how it's supposed to work. Same percentage for everybody.

Reason being, that if the cost is shifted up the scale according to household income (progressive tax), most people won't feel the effect of the levy in their bills and are therefore more likely to support more spending regardless of how much it costs or what it actually achieves. In essence, the majority votes for a minority to pay their bills, which is of course a total perversion of egalitarianism.

You may very well argue that since the minority who pays is the rich, that this is socially justified - they can afford it and it would reduce the wealth disparity - but that does not address the points made:

a) the money the rich pay is simply extracted out of the poor anyways
b) the people no longer care what the government does with the money, since it appears to be coming from someone else
Eikka
3 / 5 (4) Mar 02, 2018
Progressive energy policies should ensure that those with the highest energy demand and the means to afford it, pay for the solutions."


Indeed, and that already happens with equal percentage pay for all energy users. Those who use more energy pay the larger share.

The deeper point is that poor government energy policy and spending habits do hurt the poor, by raising the cost of energy. Turning the levies into a progressive tax dependent on income is exactly equal to subsidizing energy for the poor by handouts, but the latter method of giving handouts would be a political message of "we fudged up, and now we have to fix the damage we cause".

Turning the levies into a progressive tax is a neat way of hiding the cost from the voting majority, by letting the rich be your tax collectors. Why do you think the governments allow the rich to get richer and the income disparities grow?
Eikka
3.4 / 5 (5) Mar 02, 2018
The main reason why progressive taxation exists in the modern society is not because it's right to put the rich to pay for what they take, but because governments have grown out of proportion.

Total government spending per GDP in the western nations ranges between 40-50% up to 53% in the highly progressive Sweden.

Suppose that the government's policy actually succeeded in reducing income disparity to the point that people were more or less equal. The common Swede would be making about $46,000 a year - a low middle class income.

But, then everybody would also have to pay half their income in tax to keep up with the government spending - which would be a highly unpopular development as the person of average income currently pays something around 35% in taxes.

So, as long as the government only appears to be doing something, people keep voting for it. Actually doing something would be a political suicide. That's why the rich remain rich and the poor remain poor.
dustywells
not rated yet Mar 03, 2018
That's how it's supposed to work. Same percentage for everybody.
A fixed percentage does hit low income harder. Couldn't it work like progressive taxation, but instead of basing it on income, base it on a per kWh usage basis? IE The more kWhs used, the more you pay per kWh.
MR166
3 / 5 (2) Mar 03, 2018
Why stop with just energy? Food, housing, electronics, TV and phone charges should be on a sliding scale starting with myself who should pay nothing and ending with Warren Buffet who should pay for everybody else.

Or perhaps the government should get out of the wealth redistribution business and energy taxation.
dustywells
1 / 5 (1) Mar 04, 2018
Or perhaps the government should get out of the wealth redistribution business and energy taxation.
Should, but can't. If they did, their Ponzi structure would collapse.
Eikka
not rated yet Mar 04, 2018
That's how it's supposed to work. Same percentage for everybody.
A fixed percentage does hit low income harder. Couldn't it work like progressive taxation, but instead of basing it on income, base it on a per kWh usage basis? IE The more kWhs used, the more you pay per kWh.


That's a system already in place, as the higher your energy consumption the more you pay in service fees and the taxes levied on them. The standing charges depend on your level of service, such as how big your main fuses are. A bigger household that consumes more energy pays more.

And, often the payer is a collective, like a whole apartment building, so the higher rates would apply regardless.

Basing the tax progressively on the direct amount of kWh used would still effectively exempt the voting majority from the charges, and result in the same issue: price is information to the consumers, and if you're not paying the price then you're effectively ignorant.
Eikka
not rated yet Mar 04, 2018
And, applying a progressive taxation on your energy bills would discourage families from saving energy by purchasing things like plug-in hybrids.

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