“It’s about doing what we can to help families with the cost of living and the high price of oil. We understand how difficult it is for so many people across the country right now.”
George Osborne, 23 March, 2011
Cathy Newman checks it out
I spent today seeing what Middle England thought of the Budget.
Droxford is a pretty little village in rural Hampshire: rolling fields, the first butterflies of spring, and sprigs of daffodils. But here fuel prices are so high that villagers have had petrol stolen from their cars.
So the motorists I chatted to thought it was high time the government gave them a break. The fuel duty cut was “a step in the right direction”, they said. But they wanted the Chancellor to do more.
George Osborne deployed the usual Budget spin, but drivers here in Hampshire weren’t fooled. They know petrol’s a lot more expensive than it was (76p a litre on average a decade ago, and £1.34 now), so it now costs more than £70 to fill up a standard family car.
Set in that context, although cutting duty by around 6p a litre in total was a help – and more than expected – driving remains an expensive business. And in rural areas, that’s an expense that can’t be avoided.
And as the Shadow Chancellor, Ed Balls, pointed out, the Government’s VAT rise, introduced earlier this year, has added 3p a litre to the price of petrol. So there’s a limit to how grateful motorists should be.
And while George Osborne positioned himself as the defender of the so-called “squeezed middle”, FactCheck has spotted a stealth tax which will actually increase families’ household fuel bills. Over to the team to explain.
The analysis by Patrick Worrall
Among all the talk of petrol savings and tax reform, one the less headline-grabbing bits of today’s legislation was the news that Britain is to become the first country in the world to introduce a carbon price floor for the power sector.
A crash course in the crazy world of emissions trading goes something like this: big polluters like oil and gas companies have to buy carbon emission permits from the Government.
They can be bought and sold, so a company that cuts its carbon emissions will have permits to spare and can sell them on at a profit. The idea is that companies are encouraged to become greener without governments having to impose taxes and fines.
The only problem is that, at the moment, the cost of permits is at rock-bottom. If they stayed like that, the argument goes, there would be no financial incentive for companies who burn a lot of fossil fuels to invest in alternative energy instead.
But a floor price will require industries to pay a top-up if the market price for carbon falls below a certain level, encouraging a drive towards nuclear power and green energy.
Mr Osborne has announced today that he will introduce a price floor for EU carbon emissions permits of £16 per tonne from 2013, rising to £30 per tonne by 2020.
Not surprisingly, the news has been broadly welcomed by the nuclear industry and energy giants like EDF and Centrica who are investing in atomic power.
But there’s one voice that’s missing – that of the squeezed family who Mr Osborne said he was doing his best to help.
Analysts at the statutory consumers’ rights group Consumer Focus say the new tax will increase costs for energy providers who generate electricity from fossil fuels – and they will pass on the hit to consumers.
The move could add an extra £10 a year to the average customer’s fuel bill in 2013, Consumer Focus said. And that figure will double by 2015.
That’s based on figures from the Treasury, Ofgem and the UK Committee on Climate Change. It assumes that the added cost to fossil fuel generators being passed on to the customer in full.
Richard Hall from Consumer Focus said: “It’s not so much a danger as a definite. I would be very surprised if the companies didn’t pass it on to consumers.
“The cost for fossil fuel-based electricity generators will become more expensive. We would expect that the output cost would rise.
“Ultimately, the cost of all this indirect taxation will be picked up by consumers.”
It’s not just bill-payers who are unhappy. Environmentalists like Greenpeace are far from convinced that handing what they estimate will amount to a subsidy of more than £1.3billion to the nuclear industry is the way to fight climate change.
Policy director Dr Doug Parr said: “The carbon floor price will put up bills, deliver a windfall profit for existing nuclear power stations and yet it won’t drive investment into clean energy and improved efficiency. It’s not so much a green tax as a stealth tax and it’s exactly the sort of measure that gives green levies a bad name.”
That’s a view that may find increased sympathy in the wake of the disaster at the Fukushima reactor in Japan.
The one person who will undoubtedly benefit from the scheme is Mr Osborne.
As he neglected to tell the House of Commons today, the Treasury can expect to rake in £700 million from the new move in 2013. That is expected to rise to more than £1bn a year in the following tax year and could hit £1.4bn by 2015/16.
Cathy Newman’s verdict
In opposition, George Osborne always used to accuse Gordon Brown of giving with one hand and taking away with the other. Now he appears to have learnt the trick himself.
So while motorists are saving a few pounds at the pump, once they’ve walked through the front door they’ll be losing that and more through increased energy costs. 2011 looks set to be the year of living expensively, and there’s not a lot this austerity Chancellor can do about it.
