LONDON (Parliament Politics Magazine) – A green thinktank believes that billions of pounds handed away in a tax incentive for UK gas and oil exploration could have permanently slashed the energy bills by £342 a year of 2 million homes if investment was made in insulation measures.
Last week, Rishi Sunak announced a 91 percent tax cut, as well as a windfall tax on oil and gas corporations’ large profits. The E3G thinktank predicted that the tax relief would return between £2.5 billion and £5.7 billion to oil corporations over three years, while a £3 billion energy efficiency initiative would renovate 2.1 million houses, reducing their reliance on gas.
By October, rising worldwide gas prices are predicted to have more than doubled energy bills, driving a third of homes into fuel poverty. Energy efficiency advocates argue that loft and wall insulation, for example, is an investment which promises no regrets that saves money in the long run, reduces carbon emissions that contributes to the climate catastrophe, and creates jobs. The grants to households by the chancellor partially funded by the windfall tax, according to green groups, are simply a “sticking plaster.”
According to Tony Blair Institute for Global Change (TBI)’s report which was released on Tuesday, a £4 billion yearly investment in energy efficiency may permanently reduce family heating bills by 2035. Sunak was allegedly handing out “raincoats” while “failing to replace the roof,” according to the author.
The tax cut complies with formal definitions of a fossil fuel subsidy, which the UK along with other countries had agreed to phase out. Despite a recent investigation carried out by the Guardian, which indicates that the fossil fuel sector is already preparing projects that would jeopardise the world’s chances to preserve a livable climate, it incentivizes new oil and gas development.
(Sunak) was providing a subsidy to oil and gas companies that would do long-term harm to the transition of energy, said Euan Graham of E3G, who did an analysis of the tax break. The government did not understand what was required to establish a truly resilient and cost-effective energy infrastructure. Instead, it was willing to pursue policies that benefited oil and gas multinationals rather than British households, he added.
Ministers believe that increasing UK oil and gas output will improve future energy security, yet the fuels are primarily exported and owned by the firms.
The Institute of Fiscal Studies has also criticised the tax relief (IFS). That meant that a hugely losing venture could nevertheless be profitable after taxes. It was difficult to understand why the government would grant such large tax subsidies, incentivising even economically unsound initiatives, said Stuart Adam of the IFS.
The E3G report relied on industry investment predictions as well as data from an insulation plan backed by energy businesses and organisations. The annual savings of £342 in improved homes is based on payments due in October. The new tax benefit satisfies the definitions of a subsidy set forth by the World Trade Organisation and the International Monetary Fund, as well as a new legal definition in the United Kingdom.