UK Govt’s green subsidy ‘reform’ punishes the poor and benefits the rich

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By Paul Homewood

London, 30 March – Commenting on today’s package of energy policies released by the UK government, Net Zero Watch warned that Rishi Sunak and his colleagues appear to have learned nothing from the bitter experiences of the energy cost crisis and are ignoring the growing burden of renewable energy.

In spite of unassailable evidence that renewables costs have not fallen, the Government not only intends to continue providing billions of pounds of subsidies, but also proposes to implement Boris Johnson’s original plan to shift the green burden onto gas bills.

As a result, heating will become even less affordable for millions of poor households.

The government evasively refers to this plan as “rebalancing” (Powering Up Britain, p. 63) gas and electricity bills, but Net Zero Watch observes that the effect is not cost-neutral for most natural gas consumers in middle- and lower-income households, for the following reasons:

1. The new tax will increase total household energy bills for those currently using gas. A substantial minority of households do not use gas at all, and will not pay the new gas tax, so their current share of the electricity subsidies will be transferred to those households using gas.

2. Better off households will be able to avoid the new gas tax by switching to electric-powered heat pumps. Their share of the gas tax will then be transferred to the remaining gas consumers, who will tend to be in lower income brackets, and who therefore cannot afford heat pumps.

In effect, Mr Sunak’s new green subsidy reforms means that poor households will be forced to subsidise rich ones. This is both immoral and politically inept.

Dr John Constable, Net Zero Watch’s energy director, said:

“Subsidies to physically inferior renewables have, unsurprisingly, failed to bring down the cost of wind and solar energy by any significant margin. Rather than unfairly dumping the green subsidies on to poorer households, Mr Sunak should have cancelled these failing policies completely.”

Dr Benny Peiser, Net Zero Watch’s director said:

“While energy analysts are warning of a renewed energy cost crisis later this year, the government seems oblivious of the growing economic pain to households and businesses. Mr Sunak and his ministers won’t be able to blame the next energy crisis on Russia; instead, the government will rightly be held responsible for its total failure to reduce the rising cost of green levies.”

This is the relevant section of the DESNZ press release:

In other words, they want to shift us from cheap gas to expensive electricity. And when we have switched, those subsidy costs will get loaded back onto our electricity bills again.

This is not only dishonest, it is also illiterate from an economics standpoint. The subsidies that they want to shift are part of the cost of producing electricity. They have nothing to do with gas at all, so the government might just as well transfer them onto the cost of food or housing.

Gas is cheaper then electricity for a very good reason. We should not be interfering in the free market in this way. It will result in a misallocation of resources by transferring them from an efficient sector to an inefficient one.