The fuel price crisis is a very real problem for our country. It could however be a springboard for a thorough overhaul of the energy system. The government could use the opportunity to follow the example of other European countries currently implementing Climate Income, as it had considered last year. The impact of the likely strategies were outlined in this article posted yesterday. Yesterday afternoon the crisis was debated in the House of Commons during an Opposition Day debate in which Labour had submitted a motion to put forward a bill on cutting VAT on household energy bills. There was some argument over who had the best policy on renewables but most of the discussion centred on the various mitigation measures such as cutting VAT, environmental levies, the Warm Home Discount and a windfall tax. As you will know the motion was defeated.
Only one MP, Dannny Kruger, (Con Devizes) looked at the bigger picture (watch here) that getting to Net Zero requires the cost of carbon to rise and a new strategy has to enable this to happen without hurting the economy and the majority of householders. The CCL Devizes group has been engaging with Danny since his election in December 2019 and congratulate Danny on his willingness to engage with our group on an issue which he admits he had little knowledge of or interest in back in 2019 and his willingness to take a stand and put forward a very cogent argument for CI at the debate.
In his own words….Real pressures on the cost of living are obviously coming down the track. I recognise that, and I also note the work that the Government have done and are doing to address it. It is worth noting in passing the contributions made by Treasury Ministers in the last year: reducing the universal credit taper rate and putting £1,000 in the budgets of 2 million low-income families, increasing the national living wage by more than 6.5%, freezing fuel duty for the 12th year in a row, and introducing the housing support fund for lower-income families. However, more clearly needs to be done. The debate has been helpful in identifying some of the options that are open to the Government, including the possibility of a cut in VAT on energy. I note that the Chancellor is considering that option among many others. However, it is worth observing that a cut in VAT on household fuel would disproportionately benefit those with larger homes. I think it is right for the Government to consider it as part of a suite of possible interventions and measures to support families during the current energy price spike.
There is one option that I have not heard mentioned today, although according to news reports last year it was probably being considered then. I refer to the policy of what is called a carbon fee and dividend. The fundamental challenge that we face, given our net zero commitments, is to reduce carbon emissions without hurting low-income families and the economy more generally. One way of doing that is to ensure that as we tax carbon emissions—as we bear down on carbon using fiscal levers—the income that is generated for the Treasury is reallocated directly to families, and to low-income families in particular, in the form of a carbon dividend or climate income, as it is sometimes called. Other countries have been experimenting with this. I accept that it is quite a statist solution and one that might not come naturally to Conservative Members, but I think it is worth considering the option of enabling the income from carbon taxation to go directly to low-income families.