1. Designing carbon taxation to protect low-income households Report of a project funded by the Joseph Rowntree Foundation (JRF) Simon Dresner, Policy Studies Institute Paul Ekins, Ian Hamilton, University College London James Browne, Robert Joyce, Institute for Fiscal Studies Ian Preston, Vicki White, Centre for Sustainable Energy

2. Project method Taxes have been increased on the household use of energy and on transport. Different scenarios implemented a ‘small’ and a ‘large’ increase in carbon-energy taxation The revenues have been used to increase tax allowances and benefits. The tax-benefit package is revenue-neutral overall. Low-income households are protected as far as possible from losing money overall.

3. Compensation packages Annual increase in Small carbon tax package without transport Large carbon tax package without transport Small carbon tax package with transport Large carbon tax package with transport Personal allowance£355 £455 Basic State pension£15£70 £100 Pension Credit for singles£15£300£120£450 Pension Credit for couples£15£500£300£850 Universal Credit for singles without children £0£300£160£325 Universal Credit for lone parents £0£200£150£350 Universal Credit for couples without children £0£700£325£925 Universal Credit for couples with children £0£300£160£400 Universal Credit taper rate65% (no change)64% (1ppt reduction)65% (no change)63% (2ppt reduction) Total cost of package£1.8 billion£6.8 billion£4.6 billion£9.6 billion

4. Small carbon tax package without transport, plus compensation package

5. Small carbon tax with transport, plus compensation package

6. Large carbon tax with transport, plus compensation package

7. Small carbon tax package without transport, plus compensation package

8. Large carbon tax with transport, plus compensation package

9. Conclusion The key research finding was that compensation policy packages can be designed such that the great majority of low-income households are left no worse off, and most gain, as a result of the increased taxes on household energy and transport. The higher the carbon/energy taxes, the more revenue is available for compensation, and the more progressive can the tax shift be made. If the government wishes to use taxation to reduce CO 2 emissions, it should not be dissuaded from doing so by distributional considerations provided that at the same it applies appropriate compensation measures.

10. Thank you p.ekins@ucl.ac.uk www.bartlett.ucl.ac.uk/sustainable