Whenever discussing renewables subsidies on the internet, there is a form of Godwin’s Law that means it is inevitable that someone will come along and say: “Ackshually, fossil fuels are subsidised more than renewables,” or words to that effect, as shown in this example. I have often thought the claim to be bogus, but until now had never dug into the detail to prove the case one way or the other.
Energy is one of the elementary foundations of modern society. Almost any activity you can think of requires energy input of some type or other. Factories need energy to make things. Offices need energy for heating, lighting, cooling and running computers, as do our homes. Hospitals need energy to run operating theatres. We need energy to go to work or visit friends and family, whether we travel by car or train. We need energy to do the family shopping, cook, to travel to the gym, cinema, or restaurant. Energy is fundamental to every economic and social interaction, so it would not be surprising if energy were subsidised. Expensive energy is like a tax on our very existence, so taxes on energy act as a drag on society.
It is therefore vital that we get to the bottom of the claimed fossil fuel subsidies in the U.K.
What is a Subsidy?
In simple terms, a subsidy is when the Government pays (or mandates consumers to pay) for an activity to occur that otherwise would not happen if the market were left to its own devices. Examples might include grants to theatre companies or awarding CfD contracts to offshore wind.
A tax is where the Government levies an extra charge on a transaction or activity. For instance there is Value Added Tax, levied at 20% for sales of most goods and services. There are also special taxes such as levies on alcohol and tobacco and of course income tax. Reduced rates of tax are still taxes, quite the opposite of subsidies. No taxes and no subsidies represent a neutral position.
When it comes to oil and gas, the definition of a subsidy becomes a little controversial. The International Energy Agency (IEA) defines fossil fuel subsidies as “measures that reduce the effective price of fossil fuels below world market prices”. It is certainly true that some countries, such as Russia and Iran, do subsidise hydrocarbons according to the IEA’s definition. Interestingly, the Government said in 2021 the “U.K. does not give any subsidies to fossil fuels” and the U.K. does not appear on the IEA’s Top-25 list from 2022 of countries that subsidise fossil fuels (see Figure 1).
However, it should be noted that in the database buried in the IEA’s website it does claim that the U.K. offered fossil fuel subsidies of around £6 billion in 2022, but none in any other year. There must be something about its definition that omits the U.K. from its Top-25 graphic.
Where do the Claims of U.K. Fossil Fuel Subsidies Come From?
Given the Government statement and the U.K. not appearing in the IEA’s list of top subsidisers, we need to look at where these claims of massive subsidies come from. Unfortunately, the idea that the U.K. heavily subsidises fossil fuels has a long history. This 2013 article from the Guardian claims the U.K. is “subsidising its coal, oil and gas industries by $4.2 billion (£2.6 billion) a year”. The Guardian has produced similar articles over the years such as this one from 2019 claiming “the U.K. leads the European Union in giving subsidies to fossil fuels” and this one from 2023 claiming “the U.K. Government has given £20 billion more in support to fossil fuel producers than those of renewables since 2015”. Note that they use the words “support” and “subsidy” almost interchangeably, eliding so called “tax-breaks” with subsidies. The Guardian is not the only publication making this type of claim. Politico also got in on the act in 2021 claiming that Britain “supports the fossil fuel industry through tax breaks and subsidies… to the tune of £10bn a year”.
When digging into the articles, you can see that their definition of subsidy includes consumers or producers paying less tax on fossil fuels than the authors believe appropriate. At the risk of repeating myself, paying less tax still means the activity is taxed, which is the direct opposite of a subsidy. Paying less tax than an arbitrary level is not a subsidy. Even paying zero tax is a neutral position and certainly not a subsidy.
How Big are Fossil Fuel “Subsidies”?
The Politico article linked above refers to data from the OECD to support its £10 billion (for 2020) claim. By digging into a more up to date version the data, we can evaluate the veracity of the claims. Broadly speaking the “subsidies” or support mechanisms are broken into two categories: producer subsidies and consumer subsidies.
Using the data for 2022, the total alleged support for oil and gas producers amounts to £3.1 billion. The largest component of this total is £2.25 billion of tax relief for decommissioning. This arrangement allows companies to claim capital expenditure connected to decommissioning old fields against corporation tax. For oil and gas companies, decommissioning their fields is a normal business expense. In normal company taxation, business expenses are deducted before calculating taxable profits. There is nothing to suggest that deducting decommissioning expenses before calculating taxable profits is anything other than normal business practice and is certainly not a subsidy. A further £0.85 billion of “support” is alleged because companies can treat investment in new fields as a business expense to set against the Supplementary Charge that oil and gas companies are subject to on their profits. Again, this is not very different to the investment allowances made to companies in other industries and does not amount to a subsidy.
Using 2022 data again, there is about £12.9 billion of claimed routine consumer support for fossil fuels. £7.8 billion of the total comes from consumers being charged 5% VAT on their domestic energy bills and not the normal 20% rate. It should go without saying that 5% VAT is still a tax, quite the opposite of a subsidy. A further £3.5 billion of the alleged support comes from fuel duty relief where some types of fuel pay less fuel duty for some uses than others. Again, some fuel duty applies, just not the full rate. This is not a subsidy; it is just paying less tax. Another £1.4 billion of “support” comes from reductions in the Climate Change Levy. Ironically, much of this support is granted to organisations with Climate Change Agreements to reduce energy use or CO2 emissions. In the crazy world of climate activists, paying a lower Climate Change Levy by agreeing to reduce emissions amounts to a fossil fuel subsidy. Finally, a further £0.2 billion of consumer support comes through the Warm Home Discount. This is a reduction in energy bills for older pensioners and other vulnerable people and it is probably justified to term this a subsidy, although it applies to gas and electricity from all sources including renewables, not just fossil fuels. Out of a total £16 billion of supposed subsidies, only £0.2 billion could be reasonably termed a subsidy and an indirect one at that.
However, there is a ‘but’ and it is quite a big but because we also need to consider one-off consumer support schemes. There was £19.4 billion on the Energy Price Guarantee for domestic consumers, £2.6 billion on the Energy Bill Relief Scheme for non-domestic consumers and a further £2.6 billion on the Energy Bill Support Scheme. These schemes amount to a total of £24.6 billion and there is a case to classify this money as some sort of subsidy. However, these schemes should probably be referred to as indirect subsidies because they covered all forms of generation, not just fossil fuels. Note that as Figure 1 shows, this support did not meet the IEA definition of a subsidy, or the U.K. would have appeared in about 12th place. We should also bear in mind these schemes were one-off responses to a crisis and are no longer in operation.
Taxes on Fossil Fuels
If we are to get a complete picture we should also consider the taxes the U.K. levies on fossil fuels. These can be split into two categories: producer taxes and consumer taxes.
Oil and gas producer taxes comprise ring fence corporation tax, the supplementary charge (extra corporation tax), petroleum revenue tax and the energy profits levy (also known as the windfall tax). According to the OBR, the total receipts for these taxes rose sharply from £2.6 billion in 2021-22 to £9.8 billion in 2022-23 (the most comparable year to calendar 2022). Those who claim we subsidise fossil fuels are effectively saying we should increase these taxes by the £3.1 billion “support” identified by the OECD above. Once again, paying less tax than some arbitrarily defined level is not a subsidy.
The ONS publishes the cost of environmental taxes, many of which can be characterised as consumer taxes on fossil fuels. These include direct taxes on fossil fuels that raised the following amounts in 2022:
- Fuel duty, £24.8 billion. Those who say we subsidise fossil fuels would add the £3.5 billion of fuel duty relief identified by the OECD to this already massive tax, making it much more expensive to move around.
- Emissions Trading Scheme which raised £4.6 billion including U.K. and EU schemes.
- Climate Change Levy (CCL), £2.1 billion. Those claiming massive fossil fuel subsidies would add the £1.4 billion CCL reductions identified above to this already significant tax, effectively cutting incentives to reduce emissions.
In addition, there are indirect taxes on fossil fuels that raised even more money in 2022:
- Road Fund Licence, £5.2 billion (remember this tax does not apply to electric vehicles yet).
- Air Passenger Duty, £3 billion.
- The Plastic Packaging Tax brought in £0.3 billion. Plastic is made from fossil fuels, so this is effectively another tax on fossil fuels.
This gives a total of £31.5 billion of direct taxes and a further £8.5 billion of indirect consumer taxes on fossil fuels.
Finally, VAT is levied on domestic energy, petrol and diesel which is another direct tax that falls on fossil fuels. However, I cannot find a reliable data source that gives an analysis of VAT receipts arising from hydrocarbons so we should simply note VAT raises about £160 billion in total each year and fossil fuels will contribute a significant portion of that total.
Conclusions
This analysis is summarised in Figure 2 below.
First, we can dismiss the so-called subsidies for producers as normal business expenses deducted from taxable profits. We can also dismiss all but the £0.2 billion Warm Home Discount ongoing consumer “subsidies” as simply lower taxes for some uses of fuel. Tax is still tax and lower tax is not a subsidy. If we are generous to those who claim we subsidise fossil fuels, we could note that in 2022 there was about £24.6 billion of one-off indirect subsidies. However, these schemes are now no longer in operation.
On the tax side of the ledger, we have £9.8 billion in producer taxes, £31.5 billion of direct consumer taxes and a further £8.5 billion in indirect consumer taxes, plus an unknown amount of VAT. Even in an exceptional year when the various energy bill support schemes were in place, taxes exceeded the alleged subsidies by a wide margin.
Now the energy crisis has subsided we are left with just £200 million of indirect subsidy to help the elderly and most vulnerable with their energy bills offset by close to £50 billion of direct and indirect taxes as shown in Figure 3.
However, we should note it is likely the fossil fuel tax take will fall with lower oil and gas prices. Production will likely decline due to a lack of investment driven by the 78% marginal tax rate on profits, leading to a bigger fall in producer taxes. On the other hand, it is rumoured that the Chancellor will increase Fuel Duty in the Budget. High taxes mean high prices which in turn function as a tax on the rest of the economy leading to steady, inexorable decline. If we want a thriving economy, we should be cutting taxes on energy, not increasing them. Note again, lowering taxes is not a subsidy. Zero tax is not a subsidy, it is a neutral position. Remember this when some activist claims we subsidise fossil fuels.
David Turver writes the Eigen Values Substack, where this article first appeared.
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I was a little disparaging of Joanna’s last piece in DS, but this has far greater merit. I recognise myself and all my dangerous far right friends in these words. How to get this across succinctly though.?
Live and let live?
Sadly though the whole philosophy espoused in this article is now simply history. There is nothing I do not recognise but it is a longing for that which will never return. I fear that the next few years will brutalise our country and its British people. To imagine that our future is not dystopian is to close eyes to the wreckage that has been wrought and the wreckage that is to come under this WEF Labour government.
“You will own nothing and be happy.”
That is the future.
” is now simply history. ”
I know what you are saying but her words very much describe my life and where I live. I know I am lucky and privileged but the world she describes does still exist, here down the deep lanes of North Devon as depicted in the wonderful photographs of Jame Revilious. I will be out on Wednesday night at the village emergency committee, checking the list of the village’s emergency chainsaw operators. It may not last for ever and it may be under threat but at the moment it does still exist.
I’m with you on this SD and a good article yes – open gardens in our ‘village’ (fast growing into small town – thankyou central government planning overrule) bought people out in droves and umbrella’s yesterday to nosey around and call in and view the little garden my friend (82 + old frail & widowed) has made – a perfect small south facing garden, tamed by her knowledge and interest. And fortified by my rather fine (I say so myself) chocolate checkerboard cake. She and I both agree we are lucky to have the space to enjoy and the interest and the company to keep us both going. For as long as we can.
It’s the same where I live in the west country and it’s why I moved here 8 years ago.
But it’s changing fast: already a small town which was 98% white has visibly growing numbers of “ethnic minorities” who I very much doubt were able to afford to buy a property here, so they will be occupying social housing. I am not making a comment about them as individuals, they may all be perfectly lovely people, but the fact is the area is visibly changing … very quickly.
“And the creed and the colour and the name won’t matter” …. except as we see around the country and particularly in some areas the creed does matter … and it matters a great deal.
Ditto in rural Oxfordshire
Enjoy it while it lasts. Where I live was pretty much the same till bout 5 years ago. Now new packets of migrants get opened every week.
It isn’t 1955 anymore. The Vicar doesn’t cycle down the lane and my grandmother does not get her mangle out from the Anderson Shelter. There was no such thing as “diversity”. You got no money unless you worked, which is why my grandad spent 50 years down the Michael Pit. We didn’t eat micro wave junk and fill our belly with Cheesy Wotsits and Irn Bru. Young girls didn’t push their babies along in a pram and ignore them completely because they are fiddling all the time with their silly phone. ——-But then again people will say I have to move with the times. —-WHY?
Varmint yr family are very lucky to have you.
Why thankyou . I am very humbled.——–If you mean it
Agree.
I have never believed in change for changes sake.
The red thumbs down people are big Cheesy Wotsit fans obviously
How about this – conservatives care about people as individuals, the left just cares about the system.
They just care about power.
and votes
It’s an absolutely superb article. I may have been disparaging about her last piece too. I think what she’s saying here is the left (Tory, labour communist green lib dem) essentially has a complete god complex. Who here doesn’t think David Cameron would rather see Dianne Abbot as pm rather than Nigel Farage?
This!
Thomas Sowell puts it very well.
The policy arguments between liberals and conservatives, socialists and libertarians, do not arise just from differences in priorities regarding freedom, equality, and security. At root, they draw from different conceptions of the nature of man. The Left holds an unconstrained vision: Given the right political and economic arrangements, human beings can be improved, even perfected. Success is defined by what people have the potential of becoming, not by people as they are. The Right holds a constrained vision: People come to society with innate characteristics that cannot be reshaped and must instead be accommodated. Success in political and economic policy must be defined in light of those innate characteristics.
I recognise elements of this in the place I live – a county town in a fairly rural area, traditionally Tory. We now have a Labour MP. I think the problem is that a lot of the people involved in the kind of thing described in the article are simply too “nice” or too asleep.
Very well put, Joanna. I enjoyed this article a lot. I nodded a lot, too. Thank you.
Bang on… with the exception of enjoying Love Island! Nice, uplifting piece.
I do hate any article that makes a claim of something being better without saying what it is compared with.
It is as bad as claiming that change is a virtue when it is Labour change, whereas climate change is bad.
I take it from the article that we have not had a Conservative government for years, and probably decades.
PS I don’t have a deep memory of Lord Salisbury, I am not quite that old and anyway I don’t mix in those circles.
Not to mention warm beer and old maids cycling through the mist to church.
Give me a break. There is a horrible kind of demanded conformity in the vision outlined here. A kind of socialism, if you like, or subordination of the individual to the collective.
Thanks, Joanna, for reminding me that I am not, and never will be again, a Conservative. Let’s hear it for William Gladstone and not be seduced by the siren song of Disraeli.
Well, I don’t know if I am a conservative or not. Any society will have some element of “demanded conformity” won’t it? Don’t the problems start when the “demand” is with menaces – you must voice the right opinions otherwise you will lose your job, you must take this injection, you must give the state all your money?
That’s a nice village that you live in, Joanna!
You have nailed it Joanna
Sovereignty of the individual, self-responsibility, self-respect, self-discipline, self-sufficiency, property Rights, celebration of heritage, our common language, morals, values, manners, traditions and Common Law, free market capitalism/free trade.
Conservatism is adopt and conserve what gives best outcome – but experiment, evaluate, evolve – not obsession with process irrespective of outcomes.
Welfare State, NHS, State education, redistribution of wealth via taxation, State intervention in the economy, social engineering, telling us what we may/may not put into our bodies, State determination of values, morals, is not Conservatism. But that describes many ‘Conservatives’ and every ‘Conservative’ Government since the war.
Love it! Thank you Joanna.
Ah, what a lovely vision of Olde Englande, suddenly brought crashing down by… “LOVE ISLAND”????
She claims that “We Conservatives” all enjoy DISGUSTING PORNOGRAPHY and VOYEURISM????
Speak for yourself, Joanna.
And where in your Item 2 is the village pub and post office?