Radically reducing UK energy poverty by the 10% and LIHC indicator through progressive fiscal policy: What would it cost, who would pay, and what are the consequences for CO2 emissions?

Abstract

Energy poverty is driven by four factors: poverty; high energy prices; energy-inefficiency; and specific household characteristics. Increasingly refined definitions of energy poverty (and/or vulnerability) identify types or locations of households most likely to be suffering it. But there is also a place for considering poverty reduction directly, as poverty is a component within all energy poverty definitions. This paper investigates how high the UK's top marginal tax rates would need to be, to provide funds to lift low-income UK households above the poverty threshold as defined by the low-income-high-cost (LIHC) and 10% energy poverty indicators. It finds that the increased top tax rates would still be in line with those of other European OECD countries. Using recent research on income elasticities of CO2 emissions, it then estimates the net effects on CO2 emissions of this redistribution. For the 10% scenario the worst-case is a net 0.7% increase and, the best-case is a small reduction. For the LIHC scenario the worst-case increase is 2.21% and best-case increase is 0.7%. Indirect downward pressures on CO2 emissions due to reduced income among the highest earners are also likely to lead to further favourable outcomes for net CO2 emission reduction.