Families in Britain would be sent annual payments to offset the cost of higher gas bills and encourage a switch to green energy as part of plans under consideration in Whitehall.
Proposals being discussed by senior government advisers would compensate households for increases in gas bills that will result from the drive to cut carbon emissions.
The scheme would mean low and middle-income families being paid a set amount each year. It would be determined by how much the government raised from new carbon taxes.
The money would be paid regardless of an individual’s emissions. This means those who continued to use gas would have any increase to their bill covered by the payment. However, those who switched to cheaper green energy would still get the full payment, meaning they could pocket the difference.
The scheme is designed to fulfil Boris Johnson’s pledge to reach net-zero emissions without disproportionately imposing higher costs on consumers.
The proposal, which has been discussed in Downing Street and the business department, is modelled on an initiative that was introduced in Canadian states in 2018. Under the model the first adult in a household in Ontario receives an annual payment equivalent to £129. The second adult receives £64, and each child receives £32. The payments are seen as progressive as richer households tend to spend more on heating and other activities that generate carbon emissions. This means the payments, funded by a carbon tax of C$30 (£17) per tonne last year, disproportionately benefit the less well off.
Sources said if it was introduced in the UK it would probably be paid only to middle and low-income families.
The proposal is seen as attractive as Johnson has made clear he is not prepared to endorse policies to achieve the UK goal of net zero by putting up bills for voters that put him in power.
“We’ve got to make sure that when we embark on this programme that we have a solution that is affordable, and that works for people,” he told MPs this week. “This government is determined to keep bills low and that is a priority.”
Ministers are also examining proposals for a boiler scrappage scheme to reduce the upfront costs of converting from gas to renewable energy.
The government is expected to inject hundreds of millions of pounds into the new Clean Heat Grant, due to start next April. The scheme will offer people £4,000 towards the cost of green heating systems. It is expected to be particularly targeted at those living “off grid” who rely on LPG and oil to heat their homes.
But policy officials are also grappling with how to incentivise consumers to switch from gas heating to electricity. Last week The Times revealed that ministers were planning to introduce a scheme where suppliers of products that emit greenhouse gases will have to buy permits from the government covering the amount of carbon dioxide and other greenhouse gases they release. Ministers expect them to pass on most of the extra cost to customers.
Internal government estimates of the impact of the scheme suggest that gas bills could rise by between £80 and £170 a year depending on the “carbon price” set. On average consumers spend £550 a year on gas.
The advantage of a “carbon payment” scheme is that it would ensure the public did not suffer financially from this while providing a financial incentive to cut personal emissions.
One source said: “Johnson is determined that we need to cushion the cost of net zero for those people who voted for us in 2019. This is an idea that people in government think could work.”
Another Whitehall source said: “It is something being actively discussed in Downing Street. It is still at a relatively early stage and the Treasury is likely to be resistant but it is a clear way of showing people that they are not bearing the brunt of net zero.”
A government spokesman said: “This government is determined to keep bills low. As we’re already doing through the Renewable Heat Incentive, Energy Company Obligation and upcoming Clean Heat Grant, we will use targeted measures to incentivise the people to switch to lower-carbon, more efficient heating systems, providing a transition that is fair, affordable and practical, whilst enabling them to save money long-term. More detail on our approach will be provided in the heat and buildings strategy this year.”
Joshua Burke, a senior policy fellow at the Grantham Institute at the London School of Economics, said that the policy could help the UK’s transition to net zero to be fair. “Without mitigation measures, a carbon tax typically hits low-income households disproportionately,” he said. “But using the revenues in the form of dividends makes it possible to design a carbon tax-pricing scheme that leaves low-income households better off while driving the transition to net-zero emissions in the UK by 2050.”
Joss Garman, UK director of the European Climate Foundation, added: “This shows ministers are asking the right questions. Only a climate strategy that avoids burdening families, and that prioritises fairness, will work.”
How the Canadian scheme works
Canada introduced greenhouse gas pricing in 2018. Provinces were allowed to implement their own plans but the federal government could apply its own carbon tax, known as the “backstop”, on provinces that fell short of the national standard or had not implemented a system.
Seven of the 13 provinces and territories pay the backstop rate of C$30 (£17) per tonne of CO2 . It is due to rise to C$170 by 2030. The money is given to households in the form of a payment that increases when the carbon tax does.
In Ontario, the first adult in a household gets an annual payment equivalent to £129, the second adult gets £64 and each child receives £32. The idea is that people are protected from the rising costs of carbon and can make money by investing in green energy.
The rebate appears to have made the tax politically acceptable.
