Merryn's Blog

How climate taxes are hurting the most vulnerable working families

People in the low-to-middle earning bracket are being clobbered from all sides. As well as bearing the brunt of the recession and suffering more than most from inflation, they're being unfairly hit by 'green' taxes.

If you are wondering if the squeezed middle really exists in the UK this reportis worth looking at, if only for the charts at the beginning. They run through the financial lives of our low and middle earners (LME) defined as those "too rich to rely heavily on all the support mechanisms of the welfare state" but possibly "too poor to flourish in the market economy."

In 2008-09, the year this report covers, there were six million LME households. Overall, their average net family income was around £20,300, against an average net income across all working households of £31,500. In 2008-09 their incomes rose by a mere 2.5%; over the same period the incomes of those in benefit-dependent households rose by 4.7%, and that of those in higher income households by 3.5%. These households were, it seems, hit extra-hard by the recessions: they were more likely to lose their jobs than other groups and less likely to be able to find a new one.

It is all depressing. However, there is one figure I particularly want to focus on: even in 2008-09 this group was spending a huge amount of its income on commodities: 40% of their weekly net income went on housing, food, transport and fuel. That means that their personal inflation rates are much higher than those of higher-income households: between January 2000 and January 2009, the cost of an average LME life rose by 18%, and that of a higher earning household by 16%. That's not particularly nice to know.

But just imagine how much worse things have got since then. The things this group spend most on have all soared in price. Mortgage payments may have fallen for some, but rents have risen for most. And worse, both food and fuel prices have all but gone parabolic. Some will say that's just bad luck the market is the market and it gets us all in different ways. But there is another point to be made here: that the rise in fuel and utility prices is more about tax, and perhaps green taxes in particular, than it is about market forces.

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Indulge yourself with a few minutes on the Taxpayers Alliance website and you will see a perfectly coherent argument explaining how the taxes relating to our climate change policy will eventually put something from £300-500 on each of our current electricity bills.

Add on petrol duty and the like and as, Tim Worstall puts it on his blog, "those huge rises in energy costs are not simply a result of either soaring global prices or of a falling pound. We are actually, quite deliberately, adding to them. The renewables obligation (via which the utility companies are forced to pay very high prices for renewable energy), carbon taxes, the EU cap and trade system, feed in tariffs". It isn't just the market, "it's our own damn government causing this higher inflation rate for that squeezed middle."

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