Nothing is certain in life, other than death and taxes

12th Jul 2021

 

According to The Times newspaper, the government plan to put a carbon tax on gas used to heat homes, increasing the average bill by £170 a year. I make that an increase of nearly 40 per cent – it’s a whopping great big tax hike, make no mistake.

But will it drive change or simply be another means of taxation to fill the Treasury coffers?

Those who support the idea claim the response to £170 higher gas bills will be to make consumers switch away from using gas – presumably towards electric. Sounds logical – most market solutions do until you hit the real world. Few markets are perfect enough to allow for active switching this way.

When heat pumps cost approx. £300 a year more to run than a gas boiler, they will still be £130 more expensive after paying the tax – no rational consumer will switch to save money, it’s just another tax hike.

Even if you did save money on running costs, you need to have the alternative appliances installed to take advantage of avoiding the tax. At an average of £10 grand, very few can afford to switch. So this tax penalises those who have the least but it appears to be fair as it is applied equally.

As for those living in or near fuel poverty, what protection do they have? BEIS concluded that on top of the 3.5 million households currently living in fuel poverty, a further 1 million are within £100 of going into fuel poverty. Well, this tax takes them and many others into poverty.

From an economists’ point of view, it’s really interesting to see environmentalists who usually champion state intervention, acting as cheerleaders of a free-market solution, namely using price as a mechanism to encourage change. This so-called ‘green tax’ is simply another tax – nothing more, nothing less. Levying it on heating homes is perhaps one of the most controversial changes seen in decades.

Best wishes

Mike Foster, EUA