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Wednesday, February 28, 2007

No. 10: VAT on energy efficient goods + services
Given that taxes can be changed more quickly than laws, the Ban The Bulb campaign has suggested that the sales tax (VAT) on CFLs should immediately be reduced from 17.5% to 5%, and that this should rapidly be followed by the phased ban of different types of incandescent light bulb.

BTB has known for some time that applying a zero rate tax rate on CFLs would open up too many complex discussions within the EU to be a realistic option.

However, based on the response to the following petition from the No. 10 website (please see below), BTB sees no reason for not immediately reducing the VAT rate on CFLs from 17.5% to 5%.

Ideally in the next UK Budget.

In the UK, the VAT on a small number of predominantly high-value energy-efficient technologies has already been reduced.

However, these technologies have continued to sell in very small numbers and have predominantly been bought by the wealthy middle class.

This means that the existing tax concessions have had a relatively minor effect on carbon emissions (and co-incidentally tax revenues) and not helped those in greatest need.

In BTB's view, it would be better if all energy-efficient goods and services were charged the 5% VAT rate.

Surely, low-cost and effective technologies, such as CFLs, which could sell in very large numbers and reduce the million tonnes of carbon dioxide emission associated with lighting by 60% should not be excluded from tax reductions on the grounds that this measure might effect tax revenues.

The savings associated with greater energy efficiency, such as building and subsidising fewer nuclear power stations, and helping the fuel poor to use significantly less energy and save money, whilst achieving the same level of comfort and light, should more than compensate for any reduction in sales tax.

"We the undersigned petition the Prime Minister to Review VAT on energy efficiency products and services."

Details of petition:

"Prime Minister. There has been a lot of talk of increasing taxes to drive energy efficiency however I would like you to consider the following tax reductions: Remove VAT on ALL energy efficiency products. Remove VAT on all building works specifically aimed at improving home energy effiicency e.g. Double Glazing, Cavity Wall insulation, loft insulation, micro generation systems, Solar Panels, energy efficient boilers etc. Reduce VAT on energy efficient cars By removing VAT, these products and services will be cheaper for the customer and stimulate demand, reducing energy consumption."

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 the environmentally friendly products listed.

Under the same European agreements, a reduced rate of VAT of not less than 5% is available for the construction, renovation and alteration of housing provided as part of a social policy. We have been sparing in our use of reduced rates and have only introduced them where we are convinced that the tax system offers the most efficient and best-targeted support for our social objectives. To date 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.

It would be good to know which countries were providing significant resistance, and on what grounds, and why draught insulation and condoms are considered to include a service eligible for 5% VAT, whilst CFLs are not. It is also noticeable that the contacts with other governments have not been specified, the potential impacts on the Single Market have not explained and the timing of the next discussion at the EU level has not been made clear.

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