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Friday, January 19, 2007

No. 10 e-petition : 0% or 5% VAT on CFLs
According to the following response to an e-petition posted on the No. 10 website, the UK government has been exploring whether or not the VAT on energy saving products could be reduced within the EU, and come up with the following reasons for inaction.

This document suggests that a zero rate of VAT is close to impossible due to long-term agreements between members states on EU tax policy.

However, it looks as though a 5% VAT rate might eventually be possible, provided that someone develops a service capable of delivering large numbers of energy saving light bulbs.

Green VAT - e-petition 18 January 2007

We received a petition asking:

"We the undersigned petition the Prime Minister to create a new class of products and services that are exempt/zero rated for VAT. Suggested inclusions: - Domestic wind turbines - Solar panels - Insulation - Energy saving lightbulbs - Video conferencing equipment - Refills for existing packaging such as bottles and jars."

Read the Government's response

VAT is a broad based tax on consumer expenditure and reliefs from it have always been strictly limited. When the UK joined the European Community in 1973, it meant signing up to the general agreements which covered the application of VAT throughout the EC. Under these and successive agreements we are allowed to keep our existing zero rates of VAT on things such as food, books and young children's clothing, most of which had been exempt from the old purchase tax that preceded VAT.

Whilst these agreements allow us to keep our existing zero rates they do not allow us to extend them or introduce new ones. It is therefore not possible to remove VAT from environmentally friendly products.

Under the same European agreements, a reduced rate of VAT of not less than 5 per cent is available for the construction, renovation and alteration of housing provided as part of a social policy. We have used this provision to introduce a reduced rate of VAT for the installation of a range of energy-saving and energy-efficient products and microgeneration technologies, including solar panels, wind turbines, insulation and draught stripping in houses and other residential accommodation.

However, at present, these agreements do not allow a reduced rate to be applied to goods alone when not supplied as part of an overall service. Changes to the European agreements governing the availability of VAT reduced rates require the unanimous support of all EU Member States.

The Government has made the case at European level for changes to the agreements that would enable wider use of reduced rates for energy-saving and energy-efficient products. However, there is significant resistance to the introduction of new reduced rates for goods from some Member States because of the potential impact on the Single Market. We will consider our options and priorities for new reduced rates carefully when the issue next becomes due for discussion at EU level.

The Government remains committed to meeting environmental challenges, and promotes household energy efficiency through a range of policy measures. In the latest Pre-Budget Report alone, the Chancellor announced further support for the Government's Energy Efficiency Commitment, which requires energy suppliers to achieve energy efficiency targets for the household sector.

Other measures and initiatives announced in the Pre-Budget Report include an examination of new methods for financing energy audits and energy-saving measures; tax measures to support 'zero-carbon' homes, along with an ambition that the majority of new homes will be 'zero-carbon' within a decade; an extension to the Landlords Energy Saving Allowance to improve energy efficiency in the rental sector; and an income tax exemption for income from the sale of surplus electricity from domestic microgeneration.