Fuel poverty and tax poverty – Who got us into them in the first place?

Today is the day the media have been waiting for, the day Gordon will roll back fuel poverty. The studios have been booked, the front pages of friendly publications have been held. We await the “Warm Front”, the central heating offensive, the arrival of tank lagging and the time controlled on off switch. Elderly millionaires can now join less well off people over 70 in demanding free insulation.

I am amongst the first to agree that it is a nightmare for some people to pay the heating bill at current prices. Similarly they find the Council Tax bill, the rent or mortgage bill and the food bill a nightmare as well. Their problem is not fuel poverty, but poverty. There are still too many people in the UK with low incomes that do not allow them an easy life when it comes to balancing the bills for the necessities of modern living. All sensible politicians want to do more to tackle this.

I am also amongst the first to agree that anything we can do to help people cut their oil, gas and electricity bills the better. I have been leading a lonely campaign in the Commons – on those rare days when it is allowed to meet – to get the government to take its own advice. Where is the lagging, the draught exclusion, the timed controls, the willingness to switch off the lights when leaving the room, the ability to turn off the heating when an area is not in use in all those government offices? The government is the single biggest user of heat and light in the country. That would then save us some tax as well as helping the environment.

Fuel poverty is a strange boomerang designed by this government, probably to hurt the Conservatives, only to discover it has hurt them more. The idea is that anyone paying more than 10% of their income on fuel is fuel poor. Apparently this is independent of how much fuel they use or the price they have to pay. So someone who has a reasonable income can become fuel poor by being a bad manager of their home. Leave the lights on all night and keep the backdoor open with the heating on and you can become part of Gordon’s nightmare statistics quite quickly. Many more have become fuel poor because the oil, gas and electricity prices have shot up. As Labour is pledged to cut fuel poverty, they have to do something when fuel prices rise, only to discover they cannot do enough to prevent fuel poverty increasing.

On the basis that you are something poor if you have to spend more than 10% of your income on it, practically every one in our country is Tax poor, and most are also housing poor. Indeed, this government has taken a delight in plunging more and more people into Tax poverty, by hiking taxes and imposing new ones. It has also plunged more people deep into housing poverty, by allowing huge price rises in the housing market thanks to to its loose monetary policy and low interest rates in recent years.

I wonder if the government has understood the irony that the delay in announcing measures to tackle the rising energy bills faced by householders means the launch now takes place against the backdrop of a large fall in the price of oil? In the last two months the oil price has fallen by a third. It will take time for this to work through the system, but it does take some of the pressure off the related prices of heating oil, gas and coal.

Instead of dealing with “fuel” poverty the governemnt should be tackling poverty. Unfortunately, we are likely to see further rises in unemployment in the months ahead, when the best way of tackling poverty is to encourage more jobs.

At least the government is refusing so far to impose a windfall tax on the energy companies. If they are making excess profits we need to strengthen competition. One off levies would not work – the companies would try to pass them on to the long suffeirng customer. It would also make it more difficult to persuade them to build the new capacity this country so badly needs to keep the lights on.

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21 Comments

  1. figurewizard
    Posted September 11, 2008 at 9:25 am | Permalink

    Under admirably relentless questioning on this morning's Today programme on radio 4, Hilary Benn was forced to admit that this new fuel poverty initiative involving loft insulation and draught excluders, 'will add a bit to gas and electricity bills.' In other words the government itself is providing nothing towards this and those who have already taken such steps will now be called upon to pay for for the others who haven't already done so.

  2. Angelin
    Posted September 11, 2008 at 10:19 am | Permalink

    I applied for a 'Warm Front' grant back in March. The assessor came out within a couple of weeks. The follow-up letter confirmed we were eligible for cavity wall insulation,tank jacket,top-up loft insulation and repair/replacement oil boiler with a grant of 4000. Time guides for the work:2 to 3 months for insulation work to start, between 4 to 6 months for heating work.
    The appointed contractors seem to have area monoply on the work. The heating supplier was very quick with his survey, but quoted a staggering 3x the quote we had had from a local plumber for exactly the same work.Any price above the 4000 grant would be paid by ourselves but even the difference between grant and quote came to more than our local quote.
    I suppose the clue was in the words 'Government funded initiative' and just one company quoting.
    Incidently, the heating and insulation surveyors both had to make 240 mile round trips to us.
    Finally, yesterday, the cavity wall insulation surveyor arrived(after 5 month wait). We have still to wait a further couple of weeks to find out whether they will do it as the surveyor started ranting on about Health and Safely issues and we're only in a modest bungalow.
    No sign of anyone coming about the loft insulation so I guess the heating bill will follow the heat and keep on going through the roof.
    All in all, if Gordon's new measures are just an extension of 'Warm Front', going by my experience, new applicants will still be feeling the cold this winter.

  3. Eddie Allen
    Posted September 11, 2008 at 10:24 am | Permalink

    VAT should be removed from domestic fuel bills.
    Utility companies should be made to target homes with excessive average consumption to provide income based grants help reduce consumption. The utility companies should ( I thought they were ), use the £9 billion of grants given by taxpayers to do this.

    VAT on such an essential item is clearly in the realm of wickedness and it's debateable whether it should even apply to commercial bills. ( I Think not ).

    Secondly, without absorbing myself in a call for yet another bureaucratic dictating Quango jobs worth type affair, it would perhaps be prudent to offer businesses some tax incentive if they conduct legitimate "good housekeeping" in terms of showing reduction of fuel usage year on year which is easily able to be proven by the bills they pay. A reduction of 10% for instance could earmark a tax reward which would be based on showing a real energy saving and a financial benefit to the business so both they and the environment win.

    The only obstacle I can see to this is the European Union which wouldn't allow our government to think of such a plan.

  4. Tony Makara
    Posted September 11, 2008 at 10:41 am | Permalink

    "…we are likely to see further rises in unemployment in the months ahead, when the best way of tackling poverty is to encourage more jobs…"

    I fully agree with this. I fell we also need to define what is a job, and when a job does lift people out of poverty. The way I see it those who have to draw tax-credits are trapped in a half work/half benefits system and are very much 'in poverty but in work'. So when Gordon Brown states that three million more jobs have been created he should qualify that by saying that three million state subsidized low-pay jobs have been created.

    The British economy needs to be restructured with the hard industries at the centre of economic life. Manufacturing can provide the full time, fully waged work that will take people out of poverty and allow them to live independently of the state. Government needs to award manufacturing special-tax-status to allow manufacturers the profit margins needed to develop a sizable jobs infrastructure and pay good wages.

  5. Ian
    Posted September 11, 2008 at 10:41 am | Permalink

    I await this governments announcement that the 5 % VAT is to be removed from Gas, electricity and water bills.
    but i won't hold my breath……

    • David Hannah
      Posted September 11, 2008 at 5:49 pm | Permalink

      Our "government" would require the permission of the EU commission to do that of course, and we all know that no such permission will be forthcoming.

  6. Mark Wadsworth
    Posted September 11, 2008 at 11:21 am | Permalink

    [THe Government] has also plunged more people deep into housing poverty, by allowing huge price rises in the housing market thanks to to its loose monetary policy and low interest rates in recent years.

    Exactly. But low interest rates (and low inflation) are all-in-all A Good Thing. The downside is that they fuel credit/property prices bubbles and busts. The only way to reconcile this is, er, Property Bubble Tax or Land Value Tax, which will constantly redirect investment into produtive or wealth generating assets (and a higher tax on land values, will enable the government to reduce taxes on enterprise, labour and productive investment).

    the best way of tackling poverty is to encourage more jobs.

    Exactly, yet again. This is easily fixed. Reduce means testing to motivate the unemployed to find work, and reduce specific taxes on employment (primarily Employer's NIC but indirectly VAT on services).

    Could you add Education poverty to the list, which covers just about everybody who sends their kids private?

  7. DennisA
    Posted September 11, 2008 at 11:46 am | Permalink

    My electricity company has just increased its prices by some 30%. The total unit cost increase since February this year is touching 50%. One of the main reasons for this, but which is never mentioned, is the increasing burden of funding renewables, especially inefficient wind turbines, via the ROC's. There is much talk of elephants in rooms these days, this one is a woolly Mammoth!

    The recent action by Greenpeace and previous actions directed at coal fired power stations, can only make things worse. The crazy thing is that all wind farms need conventional back up power for 90% of their theorectical capacity, added to which the infra structure to deliver this fragmented power in many cases doesn't exist. But what the heck, where subsidies are flying around, build it anyway. The Grid is already under severe strain and we will soon be experiencing more brown-outs and black-outs as the system fails for lack of reserve.

    Unfortunately the Conservative Environmental Advisor was a major supporter of the Greenpeace action and one can only wonder at future policy if this is the official Tory line.

    • figurewizard
      Posted September 11, 2008 at 4:49 pm | Permalink

      "Unfortunately the Conservative Environmental Advisor was a major supporter of the Greenpeace action and one can only wonder at future policy if this is the official Tory line."

      One only has to look at the posts on yesterday's Telegraph in response to a pompous article by David King on the environment to realise that the dubious case for carbon emissions being the cause of global warming is coming under increasing and well informed scrutiny. It's enthusiastic adoption by this government and the cost of this to the rest of us (especially the lowest paid and pensioners) is also at the root of much of the hostility they are suffering at present. I trust that JR agrees with DennisA on the matter of the Conservative Environmental Advisor. This is no time to hand potential votes back to the opposition.

  8. Iain
    Posted September 11, 2008 at 12:11 pm | Permalink

    "Instead of dealing with “fuel” poverty the governemnt should be tackling poverty."

    Agreed, which suggests that wages at the bottom are too low, a fact more or less confirmed by the Government having to subsidise them with tax credits.

    The solution to this is to drive up the wages of these low paid. If there is a belief in markets you do this by cutting off the supply of cheap labor, in other words stop immigration. But would a Conservative Government ignore the squeals of protest coming from organisations like the CB1?

  9. Brian Tomkinson
    Posted September 11, 2008 at 2:53 pm | Permalink

    How do you register as being in fuel poverty? If there is no way of knowing how many such people there are how can the government even pretend to be meeting its self-imposed legislation?
    On a related topic, the one-off increase in winter fuel payments announced in the budget is continually referred to by ministers as how they are helping reduce the effect of the energy price increases. This is the same payment which the Chancellor sited previously as a measure he had taken to help those affected by the removal of the 10p tax rate! When is someone going to hold these mendacious people to account?

  10. adam
    Posted September 11, 2008 at 5:11 pm | Permalink

    Sustainable developers are behind this switch to energy saving socialism.

  11. Acorn
    Posted September 11, 2008 at 7:05 pm | Permalink

    "When is someone going to hold these mendacious people to account?" Well, errrr, that would be down to you and your mates at CCHQ John.

    Meanwhile, I was expecting the earth to move today with ZaNuLabour's plan to solve energy poverty; but it did not. The big six energy companies share prices moved a bit, but for other reasons. Having lagged my loft; stuffed my walls with something that looks like shredded wheat bonded with vomit; double glazed; fitted condensing boiler – second one; it now appears I will have to fund someone else to do theirs.

    Some wonk from a Quango/Charity says that the average household bill for energising your crib is £1400 a year. That is about £27 a week. [That's about the same as I spend on fags – Ed].

    If ZaNu think that energy companies are making super-normal profits, then that is a job for the Competition Commission (CC) to investigate. [note to Redwood; merge CC with OFT]

    Redwoodians may wish to take a look at the following, particularly page 33; fuel expenditure per household.
    http://www.berr.gov.uk/files/file46983.pdf

  12. Patrick
    Posted September 11, 2008 at 10:37 pm | Permalink

    Its a complete nonsense. I would like to know how much of my income i should be spending on all sorts of things. Does the government advise?

    How much of my income should i spend on say travel, clothes, holidays, exercise, girl friend etc.

    Perhaps these fuel poor people are rich in other ways; and what do they spend the other 90% of their income on?

  13. jonathan Robson
    Posted September 11, 2008 at 10:54 pm | Permalink

    John – I don't see what the conservatives would do about "fuel poverty" either – Presumably the conservatives are now also against the energy companies, why else would a leading advisor to Cameron support thousands of pounds of criminal damage caused by "activists" against a power company. I'm no Labour supporter but at least scrouging money off energy companies is far better than driving them out in the name of the AGW religion so admired by the Leader of the Opposition. I for one would be very reluctent to vote for any party who think it is OK to break the law.

  14. HJ
    Posted September 11, 2008 at 11:34 pm | Permalink

    The calls above for the removal of VAT from fuel are crazy. The biggest gainers would be those who use most fuel – generally the better off with larger houses and more domestic appliances. Taxes elsewhere would then be raised to make up the shortfall – and we know that the poor face the highest marginal tax rates in this country, hence they would be worst hit.

    The government made a big mistake when it cut VAT on fuel to 5% as this reduced the price and thus acted as a disincentive to conservation. Had prices been higher a few years ago, people would have been incentivized then to insulate their houses better and to buy more energy efficient boilers and appliances – hence they would have been affected less by current price rises.

    A much better approach would have been to keep VAT on fuel at 17.5% and use the money raised to increase personal allowances (and perhaps state pensions). This way, less well paid people would have more of a choice how to spend their own money (and they could spend it on fuel or on insulation).

  15. David morris
    Posted September 11, 2008 at 11:57 pm | Permalink

    How the hell is this "lagging and insulation for all" ever going to be delivered? Sounds like a logistical nightmare and a fantastic opportunity for fraud.

    Clearly still not interested in short term solutions and soundbytes then Gordon?

  16. Eddie Allen
    Posted September 12, 2008 at 9:11 am | Permalink

    I'm afraid I must be missing your point HJ.
    Prior to VAT being placed on heating bills ( including the standard charges which are the same regardless of income ), there was no call to place tax on domestic bills to even out the differences in household incomes and move money from rich to poor, it was a European directive as I recall ?

    Correct me if I'm wrong here but what difference can it possibly make to someone on low income if someone with a higher income uses for gas, gets a bigger bill, pays more VAT and that VAT goes to Brussels ?

    Surely noone is advocating that we tax the rich ( who feel cold the same as everyone else I've noticed ), as a way to balance out the incomes of those less well off whilst at the same time taxing those less well off 5% more ?

    Plainly BOTH individuals would benefit wouldn't they and the only loser in it would be bureaucrats in Brussels who might have to start trimming the cost of itself or perhaps do a budget which could show where THEIR money has been spent along with a record of the poorest and the better off as a consequence of having received multi-millions of British Pound notes from both rich and poor in the UK and other places ?

    I still say domestic VAT should be removed because it is a "wicked tax".

  17. HJ
    Posted September 12, 2008 at 2:11 pm | Permalink

    Eddie Allen – yes, you are missing the point.

    VAT on heating fuel was originally nothing to do with the EU. However, when the government reduced it from 17.5% to 5%, it did so because 5% was the minimum allowed under EU rules. Otherwise it might have reduced it to zero. In any case, VAT mainly doesn't go to Brussels, only 1% of it does.

    However, all this is besides the point. When you reduce tax on one thing (in this case domestic fuel) you simply ensure that it is cheaper relative to other things (and the tax on these other things, or some of these other things has to be higher in order to gain the same revenue overall) and so people will tend to consume more of the thing which is more lightly taxed (and less of things that are more heavily taxed) than if everything were taxed at the same rate. Alternatively, you need to raise the money that would be 'lost by removing VAT on domestic fuel, in a different way – for example by having lower personal tax allowances than you would otherwise.

    My point is that this is government distorting spending priorities that really should be the choice of the individual. Who is to say that some people wouldn't prefer to buy more warm clothes and so spend less on heating? However, if they do, they are charged VAT on the clothes 17.5% but at only 5% on fuel. Is this fair? The person buying warm clothes (perhaps a poor pensioner) is subsidising the lower VAT rate on domestic fuel (and the millionaire in his mansion will benefit most). This is crazy. Tax rates should be as low as possible and should not try to make peoples choices for them

  18. Bazman
    Posted September 13, 2008 at 7:20 pm | Permalink

    Suppliers should absorb the cost of pre-payment meters. Install Modern meters that show electricity costs and use in real time as well as sending usage back to the supplier for accurate billing. All new meters installed should be of this type by law. Allowing everyone to be automatically placed with the cheapest company on the right tariff.
    This ain't rocket science and the sooner the suppliers are forced to do this the better it will be for everyone.

  19. Tony
    Posted June 11, 2009 at 4:47 am | Permalink

    Eerr John it was your lot you must remember you were a minister.Then again you might have missed it, what with learning welsh

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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