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Energy Bill [HL]

My Lords, expenditure on energy in Britain before tax is now about £76 billion. With tax, it is about £145 billion. That is of the order of just over 10 per cent of total UK expenditure. The statistical series which is the most obviously pertinent for this discussion is the annual statement produced by the Office for National Statistics called Environmental Accounts 2010. In 2009, environmental tax receipts—the label given by the ONS which includes hydrocarbons, unlike some other definitions of environmental tax receipts—totalled £40 billion. The tax take was £40 billion a year, which is double—I repeat, double—the amount collected in 1993. Therefore, it doubled in about 16 years. It would be foolish to suppose that we will not see another move like that in the next 16 years, notably through the commitment to introduce carbon taxes of one sort or another. At present, by far the largest contributor to that £40 billion is hydrocarbon oils, which accounts for two-thirds of the above number—that is, £26 billion. The Institute of Fiscal Studies has a table showing all green tax receipts—on the same definition as the ONS and not the DECC definition—rising from £40 billion to £60 billion by 2015-16. That, noble Lords will notice, indicates that it will take six years for, on the face of it, the next 50 per cent increase. That shows the acceleration doubling every 12 years. It is an obvious acceleration. The GDP deflator for the six years concerned aggregates to 17 per cent, which brings the 50 per cent increase in real terms down to between 35 per cent and 40 per cent. Even so, that is an increase to £1,400 for a family presently paying £1,000 a year. The statistical picture on taxes and transfers is becoming a jigsaw on which it is essential to get some clarity. I studied physics and mathematics—the noble Lord, Lord Oxburgh, will recognise this—and the thing you have to do is have a consistent system of units. You cannot compare apples and oranges all the time. That is true of energy finances as well. We are getting into a jigsaw where a great many of the pieces do not easily fit together. It is easier to double count or miss things out. There are things like the winter fuel allowance and a plethora of means-tested benefits. This is a pattern of complexity across the piece. A few moments ago I referred to the treatment of energy subsidies, or quasi-subsidies of one sort or another. To give one example, right in the middle of the Bill there is a tweaking of the rate of interest for the Green Deal. You have to have a consistent system of financial accounts which treats all such moneys equally. Dealing with regressiveness is a central purpose of my amendment, if we are to keep the people with us. There is a rather obscure publication—it was obscure to me, at least, but I am most grateful to the officials of DECC and the Treasury for drawing it to my attention at a meeting which the noble Lord, Lord Marland, kindly facilitated last Wednesday—called Estimated Impacts of Energy and Climate Change Policies on Energy Prices and Bills. I recommend it as bedtime reading for anyone who wants to, as it were, spend more time looking at these statistics. The document shows the remarkable contrast between the top and bottom deciles in the impact of energy and climate change policies—particularly on what you might call home heating, because that definition does not include hydrocarbons. I shall come back to that in a minute. The tables are very vivid. They are all in the form of the steeply declining share of a household’s income spent on energy as you go from the bottom decile of income distribution to the top decile. This is quite a remarkable contrast: the top decile pays 2 per cent of income on household energy bills and the bottom decile 16 per cent. There are also three interesting paragraphs in the text, which I shall read out. They are paragraphs 17, 18 and 19 of this document, which was produced last July, after a very thorough and expert review of all of these quasi-subsidies, subsidies and arrangements. I am taking only these three points but noble Lords can perhaps see why I think they illustrate an important principle. Paragraph 17 says: "““The increases in gas and electricity prices accelerate closer to 2020 as the ambition of the policies that are rolled out increases. However, there are a number of policies that already have some impact in 2010 (including the””," renewables obligation—there are a lot of acronyms here—the, "““Carbon Emissions Reduction Target … Feed-in-Tariffs … and EU””," Emissions Trading Scheme. Paragraph 18 says: "““Table 1 also shows the estimated impact of energy and climate change policies on an average domestic energy (gas plus electricity) bill. In total, policies are estimated to increase the average bill by £13 (1%) compared to a bill in 2020 in the absence of these policies. The breakdown of the energy bill into separate gas and electricity bills shows that the biggest percentage increase comes from the rise in domestic gas bills””." Now, noble Lords might say, ““£13? Well, that’s peanuts””, but let them listen to paragraph 19: "““The impact of policies on gas and electricity prices is much greater than the impact on gas and electricity bills. This is because bills are a combination of prices and energy usage, and therefore include the impact of a range of policies which improve energy efficiency by helping households and businesses reduce energy consumption, lessening the overall bill impact. Chart 3 … shows the estimated average bill impact of individual policies in 2020””." If I translate that into my English and read it aright, it is a bit rich to pray in aid that a rise in world prices, which mean that we do not have to do so much on our own carbon taxation, is a benefit to poorer people by lowering the consumption of the poor. They are lowering their consumption because they cannot afford it. They move out of the income distribution energy expenditure statistics because they no longer have a car or heat their house so much. Somebody at some point may come back to me and think I have got it wrong, but I can see no other interpretation of those paragraphs. Let me move on but that is part of regressiveness, is it not? Likewise, a recent Institute for Fiscal Studies table showed that if a carbon tax were introduced at an average—and it has reasons for taking these numbers—of 0.22 per cent of income for all deciles, the bottom decile of the population would pay 0.51 per cent of their income, which is well over 4 per cent of the burden of the top decile, as a carbon tax. A carbon tax will grow very rapidly if that is going to be the main instrument of our Kyoto and Copenhagen responsibilities. A carbon tax will be a real game changer. It will change the balance slightly from the hydrocarbons, which a lot of people think are meeting the environmental limit of their contribution to environmental policies, quite apart from the social uproar of some of them. We have to think about how we can still have an effective low-carbon energy policy while avoiding devastating consequences for income distribution, which is already reaching a critical stage. One issue is how we share this information on tax or price increases with the public. I will take a public bar in Burton upon Trent as my archetypal place to be on a Friday night. In a public bar in Burton upon Trent, how are people supposed to know any of this and have any buy-in to any of it? How do they know that figures are not being manipulated or double-counted—adding oranges to apples and so on? The first thing we need, in technical jargon, is an overall regressiveness table for all energy consumption before and after taxation. I do not think that is all that difficult an exercise, once you have decided how you are going to treat a whole list of things statistically. When you have done that, you just do it and publish it. The electricity market reform is more ambiguous. One point is the removal of ambiguities in press releases. For example, an important and yet everyday remark made in the press—I quote a newspaper—is: "““Consumers are facing big increases in their energy bills to pay for the £130 billion plan to build a new generation of ‘green’ power stations over the next decade””." Everyone agrees that these are the numbers: £100 billion for generation and £30 billion for rebuilding and extending power transmission systems. I have two worries about the way this is explained. One is that presumably not all of this is a gross increase—that is, it is not all new money—as opposed to the earlier assumption. There must have been some level of renewal in the previous projections. Another is that it is not public expenditure. I think people are getting totally confused about what sort of money we are talking about. Thirdly, all this is at a time when world energy prices might be on the rise again. However, that is part of another debate, even though I accept that it cannot be easily separated out in the public bar in Burton upon Trent. A further refinement, which is not a footnote, is the totally different price elasticities of demand for different types of energy. On the face of it, again because of social problems, price elasticity is very low in home heating simply because there is a limited range within which people need to heat their homes—all the electricity propaganda says it should be between 65 and 70 degrees Fahrenheit. Therefore, doubling the price of home heating would simply double the household expenditure on that element, whereas petrol taxes are far more price elastic. Unlike home heating, they will, in practice, be coupled with people at the bottom end.