A 'Variable Energy Price Cap' to Help Solve the Cost-of-Living Crisis

Arnab Bhattacharjee, Max Mosley and Adrian Pabst

No 34, National Institute of Economic and Social Research (NIESR) Policy Papers from National Institute of Economic and Social Research

Abstract: Transforming the single point Energy Price Cap into a variable (or sliding) price cap where the price per unit of energy used increases with usage would help solving the cost-of-living crisis, according to latest research by the National Institute of Economic and Social Research (NIESR). The effect of such sliding price cap would be to reduce energy bills for lower-income households in the country while higher earners, who consume more energy, bear a commensurate share of the higher costs. As energy use is strongly correlated with household income, making units of energy more expensive for those who use it the most affects higher-income households while making usage cheaper for lower-income households. When compared to other policy proposals – specifically freezing energy bills – our proposal has a number of advantages. First of all, it is more cost effective as freezing energy bills has been predicted to cost around £100bn over the winter period. Although there is evidence to suggest that such a substantial approach is affordable, we propose a way to achieve the same goal without such a cost to the Exchequer and ultimately the taxpayer.

Date: 2022-09
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