Use carbon taxes to cut poverty say analysts

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Money from carbon taxes on energy bills should be used to lift millions of households out of fuel poverty and boost the economy, it has been suggested.

The Treasury will receive billions of pounds a year from 2013 as energy companies are made to pay for carbon emissions, and addition to energy bills will be viewed as a stealth tax unless it is spent helping consumers, Ministers were warned.

Analysis for Consumer Focus estimates revenue of £63bn between 2013 and 2027 will come from energy firms paying for carbon emissions, rising from £2.7bn next year to £6.8bn a year in 15 years’ time.

The report estimates that households will pay £21 a year next year, with the cost of the green policies rising to £39 by 2020.

But rising energy bills, mostly driven by increasing gas prices, will see the number of households in fuel poverty – spending more than 10 per cent of their income on heating their homes – grow from six million to more than nine million by 2016.

Investing the revenue in measures such as insulation and efficient boilers could lift as many as nine out of 10 households out of fuel poverty, cutting their bills by £200 a year, the report said. It would also generate up to 71,000 jobs by 2015, and boost the UK economy.

Even spending just 35 per cent of the billions from carbon revenues to bring in energy efficiency measures in homes that are not extremely expensive to tackle could cut the number of families in fuel poverty by 75 per cent.

The analysis by Cambridge Econometrics and Verco suggested this would more effectively boost the economy than using the money to invest in infrastructure, general government spending or cutting fuel duty or VAT.

The benefits would be felt long-term as people who are spending less money on their energy bills will have more income to spend on other goods and services, while the country as a whole will be importing less foreign gas.