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The Progressive Policy Think Tank

Poorest pay six times more of their income on energy bills than the wealthiest

Energy rethink could save bill payers over £Â£7bn

Those with the lowest income are spending six times as much of their disposable income on green energy policies compared to those with the highest income, according to a report published by think tank IPPR today.

The report shows that lower-income groups are paying a far larger proportion of their disposable household income than more affluent households because of a number of factors including the prevalence of pre-pay meters and reduced internet access leading to exclusion from the cheapest tariffs.

The report recommends offering a ‘green levy allowance’, which would help to protect low-income households. The green levy allowance could be funded by new energy policy ideas, which could save over £Â£7bn from the cost of low-carbon policies including:
 

  • Publicly-owned, privately-run nuclear plants to reduce the cost of building new nuclear capacity
  • Danish-style offshore wind farm development

The report shows that if the British government, which wants to build 12 new nuclear power stations, owned the new reactors while outsourcing their construction and operation to private sector firms, the costs could be significantly reduced by up to £Â£5.5bn. The report highlights other significant infrastructure projects that the government already has a stake in such as Crossrail and the London Underground, and has previously invested in like the facilities for the London 2012 Olympic and Paralympic Games.

The report argues that if the government were to adopt the Danish model of procuring new offshore windfarms it could lower the development costs and bring better value for money for the public. At present hundreds of millions of pounds are being spent developing offshore wind farms, which may never be built. These costs are finding their way through to higher consumer bills.


Joss Garman, IPPR Associate Director, said:

“The government’s plan to hike up green taxes on energy bills risks causing a public backlash against action to address climate change, especially because they hit the poorest households hardest. Continued growth in clean energy is imperative to cut carbon pollution, support our low-carbon industries, and maintain our energy security. Ministers could shave billions of pounds off energy bills, and offer every family a green tax holiday whilst maintaining the same level of ambition on climate change.”

Notes to Editors

IPPR’s new report – When the levy breaks: Energy bills, green levies and a fairer low-carbon transition -– will be available from Wednesday 17th June from http://www.ippr.org/publications/when-the-levy-breaks-energy-bills-green-levies-and-a-fairer-low-carbon-transition

‘Lowest income’ refers to the bottom decile of households, which is being compared here to the top decile. Lower income groups are paying in a far larger contribution, relative to their income, than more affluent households. People within the lowest income decile are spending 1.68% of their income on energy policies; six times more than the highest income decile who contribute just 0.27% of their income.

The green levy allowance means that households will not pay for any green levies in their bills for the first portion of energy used. This will mean that those that consume less (generally lower income groups) will pay less, but higher income groups will pay what they are predicted to pay under current policies.

In 2013 the government published a strategy intended to pave the way for the construction of 12 new nuclear reactors on five sites across Britain. The first to be built is at Hinkley Point C in Somerset, which is set to cost £Â£24.5bn (including £Â£17.6bn in subsidies) making it the most expensive power station ever built anywhere in the world. The report argues that a new nuclear programme at the proposed scale of 12 plants is not feasible due to the costs involved but if new nuclear power projects are to continue to be supported, beyond the Hinkley Point C project, the government should use different financing arrangements that would provide better value for money for the British public.

Consumers could save £Â£1.2-£Â£1.8bn between 2015 and 2035 if there were public ownership during the construction phase of the government’s proposed programme, followed by selling the completed assets to the private sector. If public ownership were continued during the operational phase, but a private company were contracted to run each individual plant, this could produce additional savings for the consumer worth £Â£2.5-3.7 billion over the period, leading to a total saving of £Â£3.7-5.5 billion. The government could borrow more to enable this to happen, or projects could be financed through existing capital budgets in place of other major infrastructure schemes.

Contacts

Sofie Jenkinson, 07981 023 031, [email protected]

Richard Darlington, 07525 481 602, [email protected]

Danny Wright, 07887422789, [email protected]