PM Johnson’s blunt instrument comment backfires, new research shows no link between earnings and energy use, as calls for VAT to be scrapped grow

17th Jan 2022

 

Research commissioned by the energy regulator Ofgem contradicts the argument that higher energy use is associated with higher incomes. The work, undertaken in 2020 by the Centre for Sustainable Energy, has been seized upon by the not-for-profit trade body Energy and Utilities Alliance (EUA), as proof the Treasury is blocking the willingness of the Prime Minister to act.

The analysis examined the distributional impact of household income and energy consumption and found no direct link between high incomes and high energy use, directly contradicting the argument used by the Government for not scrapping VAT on energy bills. 

According to the data, higher incomes are more likely to be associated with low gas heating costs, with below average lower income households more likely to have higher levels of gas consumption. 

Further detailed study of the data by EUA also confirms that lower income households spend disproportionately more on heating their homes, with 1.9 million households earning 45 per cent of the average income, but consuming 86 per cent of the average amount of gas for heat; 1.5 million households earning 53 per cent of the average income, but using 94 per cent of the average household gas consumption. 

Mike Foster, CEO of Energy and Utilities Alliance, said:

“It is a fallacy to think only high earners have high levels of energy usage. It is equally likely that high earners consume below average levels of energy to keep their homes warm." 

“What is clear from the study is that certain groups, at or below average incomes, consume above average levels of heat, which suggests scrapping VAT on energy will benefit them most." 

“The most striking data concerns those households on very low incomes, typically around half the national average, whose consumption of energy is only slightly under the average, around 90 per cent. These are the people most likely to struggle to keep warm; ration their heating and cannot afford the massive increases coming their way. Scrapping VAT on their energy bills would have a disproportionately beneficial impact to them.”