20131101_R4

Source: BBC Radio 4: Today Programme

URL: N/A

Date: 01/11/2013

Event: IFS: UK carbon tax inconsistencies cause higher energy bills

Credit: BBC Radio 4

People:

• Tanya Beckett: BBC business journalist
• John Humphrys: Presenter, BBC Radio 4: Today Programme
• Paul Johnson: Director, Institute for Fiscal Studies

John Humphrys: The time is now 18 minutes past 7 and let us now return to energy bills - why are they so high? Well, part of the reason - part of it - could be energy- is, indeed, energy taxes. More on that, from Tanya.

Tanya Beckett: John, thank you very much. Well, high energy bills have been firmly in the news headlines this week. David Cameron has told Parliament he wants to review green regulations and charges, and a fresh report out this morning from the Institute for Fiscal Studies points out that inconsistencies in the way that carbon use is taxed could be making things worse. Specifically, the report focusses on the carbon price - existing policies impose very different costs on different energy users, businesses are taxed more than households, for example and electricity is taxed more than gas. Here to explain, Paul Johnson, who is Director of the Institute for Fiscal Studies. Paul, what are you really alleging in your report - this report? What are you getting at?

Paul Johnson: Well, what we wanted to look at was the extent to which government policy was efficiently tackling what government - this government and the last - have set itself, which is this hugely ambitious target to reduce carbon emissions by 80% by 2050. And one part of doing that is, of course, through energy policy, through how gas and electricity is taxed and treated. And what you will want, you'd think there, is a consistent carbon price, so that however you're using energy, gas or electricity, household or business, you're paying much the same carbon price.

But, as you said in the introduction, actually what we have is something which charges businesses quite a lot more than it charges households. It charges a lot more on electricity than it does on gas, with the result that you would expect, that the way in which people respond will be really rather inefficient, and, in the end, more costly than if you had a straightforward single carbon price across all energy use.

Tanya Beckett: Right, but that wouldn't be logical in terms of how it is targeted, because electricity can be generated from a number of sources, only one of which is fossil fuels. Gas, however, is gas.

Paul Johnson: Well, therein lie two problems. One issue, of course, is that as we move more and more towards renewables through electricity, the fact that we're essentially not taxing gas at all will encourage people to move towards gas, which will be much more carbon-intensive as you go forward. But equally, at the moment there's, first of all, very little incentive on individual households to use the renewables path.

Tanya Beckett: Okay.

Paul Johnson: And things like the climate change levy for businesses don't distinguish between the different forms.

Tanya Beckett: Right, so why are businesses, paying more, very briefly, than households? And is there hope there that if there was some more of a level playing field, that households would actually end up paying less? Because that's what we're trying to get to, isn't it.

Paul Johnson: Um, well, I mean, on the last question, no, not really. I think, you know, as we go forward, prices on households - already policies in the pipeline will increase costs for households and businesses, and will increase costs for businesses really quite significantly beyond what is actually needed to achieve some of these carbon targets. But, actually, if you look at the comparisons, if anything households are under-taxed, relative to businesses, and I say there really isn't a tax on domestic use of gas, and that's unlikely to be sustainable into the long run.

Tanya Beckett: Paul Johnson, thank you very much indeed.