Embed Size (px)
Citation preview
Designing carbon taxation to protect low-income households
Report of a project funded by the Joseph Rowntree Foundation (JRF)
Simon Dresner, Policy Studies Institute Paul Ekins, Ian Hamilton, University College London
James Browne, Robert Joyce, Institute for Fiscal StudiesIan Preston, Vicki White, Centre for Sustainable Energy
Project method
• Taxes have been increased on the household use of energy and on transport.
• Different scenarios implemented a ‘small’ and a ‘large’ increase in carbon-energy taxation
• The revenues have been used to increase tax allowances and benefits.
• The tax-benefit package is revenue-neutral overall.• Low-income households are protected as far as possible
from losing money overall.
Compensation packagesAnnual increase in Small carbon tax package
without transportLarge carbon tax package without transport
Small carbon tax package with transport
Large carbon tax package with transport
Personal allowance £355 £355 £355 £455
Basic State pension £15 £70 £70 £100
Pension Credit for singles £15 £300 £120 £450
Pension Credit for couples £15 £500 £300 £850
Universal Credit for singles without children
£0 £300 £160 £325
Universal Credit for lone parents
£0 £200 £150 £350
Universal Credit for couples without children
£0 £700 £325 £925
Universal Credit for couples with children
£0 £300 £160 £400
Universal Credit taper rate 65% (no change) 64% (1ppt reduction) 65% (no change) 63% (2ppt reduction)
Total cost of package £1.8 billion £6.8 billion £4.6 billion £9.6 billion
Small carbon tax package without transport, plus compensation package
Poorest 2 3 4 5 6 7 8 9 Richest-£800
-£600
-£400
-£200
£0
£200
£400
£600
£800
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
Carbon tax loss (cash, left axis) Compensation package gain (cash, left axis)
Total gain/loss as a % of income (right axis)
Income decile group
Annu
al ca
sh g
ain/
loss
Gain/loss as a percentage of income
Small carbon tax with transport, plus compensation package
Poorest 2 3 4 5 6 7 8 9 Richest-£800
-£600
-£400
-£200
£0
£200
£400
£600
£800
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
Carbon tax loss (cash, left axis) Compensation package gain (cash, left axis) Total gain/loss as a % of income (right axis)
Income decile group
Annu
al ca
sh g
ain/
loss
Gain/loss as a percentage of income
Large carbon tax with transport, plus compensation package
Poorest 2 3 4 5 6 7 8 9 Richest-£800
-£600
-£400
-£200
£0
£200
£400
£600
£800
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
Carbon tax loss (cash, left axis) Compensation package gain (cash, left axis) Total gain/loss as a % of income (right axis)
Income decile group
Annu
al ca
sh g
ain/
loss
Gain/loss as a percentage of income
Small carbon tax package without transport, plus compensation package
Poorest 2 3 4 5 6 7 8 9 Richest0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Winners
Broadly unaf-fected
Losers
Income decile group
Annu
al ca
sh lo
ss
Large carbon tax with transport, plus compensation package
Poorest 2 3 4 5 6 7 8 9 Richest0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Winners
Broadly unaf-fected
Losers
Income decile group
Annu
al ca
sh lo
ss
Conclusion• The key research finding was that compensation policy
packages can be designed such that the great majority of low-income households are left no worse off, and most gain, as a result of the increased taxes on household energy and transport.
• The higher the carbon/energy taxes, the more revenue is available for compensation, and the more progressive can the tax shift be made.
• If the government wishes to use taxation to reduce CO2 emissions, it should not be dissuaded from doing so by distributional considerations provided that at the same it applies appropriate compensation measures.
