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What would lower earners prefer - lower taxes or cheaper energy?

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By Paul Goodman

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Tony Lodge of the Centre for Policy Studies had a letter in this morning's Daily Telegraph about how to tackle "the looming energy crisis".  One can't accuse Lodge, a regular contributor to this site, of shying away from the root of the problem, which in his view is the EU's Large Combustion Plant Directive. He wrote:

David Cameron should now act in the national interest and deviate from the EU directive, instead keeping those coal and oil plants that are under sentence as an emergency energy reserve for the next five years, allowing them to be used when necessary to provide electricity.

Let's leave aside the technical issues raised by Lodge's proposal (the Government is already implementing the directive, so there would be compensation implications), not to mention the legal ones (which would doubtless help to swell the coffers of various HugeFee QCs), and imagine for a moment that the Prime Minister took his advice.

As Lodge himself points out, there would still be "an elephant in the room" - namely, the Carbon Price Floor, which in essence will see the companies concerned paying extra taxes to government...which, in turn, will mean consumers paying extra costs to companies in the form of higher bills as costs are passed on to them.

Lodge has an answer to that too.  As he has argued on this site, he believes that the Government should "re-examine a carbon price floor which will prematurely force coal out and encourage a greater reliance on gas than relative prices warrant".  In other words, Ministers should decarbonise more slowly.

Never mind what Greenpeace would say.  Think of reaction in the Treasury: after all, the money from the carbon price floor will provide be a steady stream of revenue.  But reduced energy bills would surely be no less attractive a proposition to lower income earners than a 10p tax rate or higher thresholds - probably even more of one, given recent and future energy bill rises.

The Chancellor would demand a quid pro quo for any carbon price floor suspension or delay.  I respectfully disagree with Tim Montgomerie about the merits of a tax cut for lower earners funded by new council bands for higher ones.  (Miliband's proposal for a 10p rate/mansion tax deal would be worth a mere 67p a week.)

Rather than replace lost revenue from a delayed or suspended carbon price floor by further tax rises, I would look for further reductions in the rate of spending.  I hope that we have followed in Lodge's footsteps by not shying away from the root of the problem.  ConservativeHome has itemised how to scale back spending further by as much as £50 billion


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