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Budget 2014: Carbon tax cut could mean lower energy bills

power station Image copyright Getty Images
Image caption Energy generators are among those who would benefit from a tax cut

Households could be spared rises in energy bills, if the chancellor freezes a carbon tax in Wednesday's Budget, according to consumer groups.

It is being widely predicted that George Osborne may decide to abandon any further increases in the Carbon Price Floor, introduced in April 2013.

Any freeze in the tax could cut as much as £50 from consumer bills by 2020.

Meanwhile, a BBC survey has suggested that energy bills are the biggest worry for households.

The Carbon Price Floor (CPF) is designed to penalise companies who create pollution, and to encourage investment in green energy.

The merits of freezing the tax have been advocated by an unusual array of allies, including the CBI, manufacturers' organisation the EEF, energy suppliers and consumer groups including Which? and Consumer Futures.

However, those in favour of more investment in green energy are likely to be disappointed. Environmentalists say it could mean fewer wind turbines or solar farms being constructed.

'Unnecessary burden'

The Carbon Price Floor (CPF) ensures that polluters pay a minimum price for the gas or fossil fuels they burn.

In effect, it is a surcharge on the European Emissions Trading Scheme (EETS), which was designed to tax polluters across the EU.

However, the market price of the right to emit carbon has fallen so much that the EETS is no longer as strong a disincentive to pollute as it was.

But the implementation of the CPF has left many big British companies paying more in tax than their counterparts elsewhere in the EU.

Last year, the CPF added £5 to a typical UK energy bill, according to the Department of Energy and Climate Change (DECC).

But as the tax is due to be ramped up over the next few years, so too is the contribution from consumers.

"The Carbon Price Floor is set to become a bigger and unnecessary burden on struggling consumers in coming years and we think it should be scrapped," said Richard Lloyd, the executive director of Which?

'Worry'

A BBC survey, meanwhile, has suggested that energy bills are the top worry for consumers.

Cost of living survey

  • 28% say their personal financial situation is causing them stress

  • 19% say they spend more than they earn each month

  • 60% say they have money left over

  • 71% say they don't have more to spend on non-essentials than last year

Getty

The survey, conducted by ComRes for BBC Breakfast, concluded that more people worry about paying utility bills or council tax than any other household expenditure.

The cost of food came second, with the cost of petrol and diesel in third place.

The survey also asked whether consumers were expecting their finances to improve in the next 12 months.

Of the 1,000 adults questioned, 28% thought there would be an improvement in their financial situation.

Some 19% of respondents thought their situation would get worse.

A majority (51%) expected it to stay the same.

How will your finances change in the next 12 months?

%

Answer Percent
Source: ComRes
Stay same51
Improve28
Get worse19
Don't know2
tooltip

The expectations contrast with the improvement in the economy, although with wage increases still running below inflation, most people are not yet experiencing an increase in living standards.

More than a quarter of people questioned said their financial situation was causing them stress.

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