Reducing poverty in the UK to mitigate energy poverty by the 10% and LIHC indicators: What tax changes are needed, 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 a different approach, considering poverty reduction directly, as poverty is a necessary 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 and new research on income elasticities of CO2 emissions, it then estimates the net direct effects on CO2 emissions of this redistribution. For both scenarios the most likely effect is a small reduction in net CO2 emissions. Further, indirect downward pressures on CO2 emissions due to reduced income among the highest earners are likely to lead to yet more favourable outcomes for net CO2 emission reduction.