The increases in British energy prices in 2022 are unprecedented in our lifetime. The dual fuel price cap for electricity and gas supplied to a typical household is likely to be more than twice as high at the end of December as it was at the beginning of January. Within months electricity will cost more, even adjusted for inflation, than at any time since the 1930s.
So the government plans to bring in subsidies, as of today (May 26) supposedly around £400 per household, or about one quarter of the typical pre-subsidy annual increase of £1500 per household. All households will benefit, with as-yet unspecified additional support for the poorest.
Yet the gulf remains between the price of energy and its value, especially when the environment is taken into account. On the coolest days in May, many (most?) home owners and tenants will turn on the heating without giving very much thought to its cost. How many of us turn off computers and lights when we don’t need them, cut down on oven usage, or forego a trip in the car because of the cost of petrol? As of yet, in spite of this year’s price inflation, it is unlikely that we will be making major changes to our way of life.
Meanwhile global wheat prices have risen by more than 60% this year, largely due to Russia’s invasion of Ukraine.
Poverty vs the environment?
How do we reconcile fuel poverty and the cost of living on the one hand and environmental devastation on the other? One approach is to subsidize food and energy in a limited and selective way, and tax it fiercely beyond certain levels and within certain categories. The taxes raised contribute towards the subsidies and also hospital services and clean energy. This general approach has the merit of being socially progressive.
Take flying, for instance. One interesting idea – not mine – is that a person’s first (return) flight of the year could be priced at roughly today’s levels – subject, perhaps, to a distance-related levy. Each subsequent flight taken in the year by the same individual doubles in price: 2X, 4X, 8X, … The formula could be applied to both business and leisure flights. Frequent fliers would pay not just a bit more, but many times more for their average journey than those who go for a single annual holiday. Social arguments aside, there is a pleasing symmetry between the exponential nature of the pricing, the exponential increase in per capita energy consumption during the last century, and the exponential impact in terms of climate change.
Similar thinking could be applied to home energy use – though it would probably depend on smart (daily) metering. The first daily 10 kWh (30 kWh) of electricity (gas) consumption in the home would be subsidized. (There would need to be a seasonal profile, and adjustment for number of occupants, but the details could be worked out.) Any extra usage during the day would be at a significantly higher rate. Couples living in large detached properties might need to turn off the heating in parts of the house to avoid large bills – or alternatively, let out rooms to lodgers. Those with poor insulation, which should be separately subsidized, would be strongly incentivized to improve it. Those of us with early smart meters, who only paid attention to them in the first week when they had novelty interest, would take notice of them properly, along with the rest of the population who experience the later roll-out.
And to food. In this case, there are different categories to consider. The government could tax junk food at levels comparable to tobacco in percentage terms. If you want to eat red meat, that’s fine, but it is a luxury item that will also be heavily taxed. Staples like grains, potatoes and leafy vegetables would be subsidized. Anything that is bad for health or the planet would be expensive.
Such an approach does not prevent people from ever enjoying themselves – it simply makes it (much) more expensive, so that luxuries are treated as such. Everyone is protected to a certain degree. The wealthy and middle classes pay proportionately more. Incentives are put in place that would be environmentally beneficial.
One can but dream.