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Energy crisis solution requires a longer-term tax vision

August 2022

‘Do we want to live in a country where the response to every question is: “what is the government going to do about it”? Where every time prices rise, every time a company gets in trouble, every time some new challenge emerges, the answer is always: the taxpayer must pay?’

So asked the then Chancellor Rishi Sunak in his Autumn Budget speech on 27 October 2021. The inference seems clear; the tone seemingly one of frustration at being lobbied to provide support when faced with every national challenge. It is a ‘groundhog day’ cycle that appears difficult to break as we emerge from the pandemic.

One danger of such an approach is that we risk treating only the symptoms with a sticking plaster, rather than dealing with the underlying cause of the issue. The current energy price crisis might not be so pronounced if there was already a clear, longer-term fiscal vision for dealing with the challenges of climate change and our reliance on fossil fuels.

Recent research from the consultancy firm Stonehouse highlights the desire for leadership on the issue, with 60 per cent of those surveyed agreeing that the government’s priority should be on a long-term plan to protect the UK from future energy shocks. In addition, 77 per cent agreed that the UK needs to be more self-reliant when it comes to energy.There are a number of possible areas the Treasury could explore, including:

In the current economic climate, with fuel duty already at peak unpopularity, the introduction of a new carbon tax is likely to be a political step too far. If it were to be given serious consideration, a way to sweeten such a bitter pill may be to ringfence the tax revenues and use those funds to help households become energy efficient. Even if a carbon tax is not the answer, the Treasury will likely face calls to financially support those wanting to make their homes more energy efficient with funding for insulation, draught-proofing and renewable energy and heat sources. The challenge will be balancing the needs of the short-term with longer-term solutions.

authors:chris-etherington