Energy Subsidies in the UK

This report provides an overview of energy subsidies in the UK, starting with an overview of the basic economics, then identifying the scale of subsidies in the UK, and finally comparing the UK position with other countries.

Ideally, a thorough study on energy subsidies would track, for each branch of the energy system, total income arising through energy taxes, and net off all public payments made for infrastructure, services (including regulatory functions, system balancing etc.) as well as the direct subsidies provided through price support mechanisms.

At an economy-wide level, simple generic comparisons can be made on this basis. Tax revenues from energy in the UK amount to around £28bn annually, the vast majority (97%) of which comes from road fuel taxes. Tax income for transport of around £27bn considerably outweighs the total government transport budget of around £20bn. Road transport fuel has long been used to provide net revenues to treasury.

Outside of the transport sector, the other energy sectors on the other hand are much more lightly taxed. The consumer tax base for energy products in the UK generates revenues (excluding VAT and carbon taxes) of around £1bn. This compares with subsidies identified in this report totalling around £10bn, which is around 0.8% of the market value of energy (~£120bn excluding road transport fuel). Even considering that this is a lower bound estimate, in aggregate, energy subsidies and taxes are therefore rather low compared to market value. Nevertheless, they form an important part of the revenue stream for many different types of energy investment, and for this reason, subsidies have an important strategic influence on the development and choice of energy technology used in the UK.