Retailers Urge UK To Cut Tax On Energy-Saving Appliances

by Robert Lee, Tax-News.com, London

20 August 2009

Retailers in the UK say that value-added tax (VAT) should be removed entirely from energy-efficient appliances and a car-industry-style scrappage scheme considered to help households cut their fuel bills and assist the country to lower its carbon emissions.

The proposals were made by the British Retail Consortium (BRC) in a letter to Chancellor of the Exchequer Alistair Darling, as the Treasury begins work on the pre-budget report, to be announced later this year.

In its submission to the Chancellor, the BRC says: "A clear signal should be given to households of the benefits of a switch to the most energy efficient products … this could be kick started through time-limited scrappage schemes for those buying ‘Energy Saving Recommended' products."

According to the BRC, carbon dioxide emissions could be reduced by 1.3 million tonnes each year by 2020 if VAT is removed from the most energy efficient equipment. This equates to almost 1% of UK emissions.

The BRC says that although the reform would cost GBP507m per year in lost VAT receipts, this would roughly equal the revenue lost in just two weeks as a result of the 2.5% temporary cut in the VAT rate to 15% last year.

Stephen Robertson, BRC Director General, said: "The government's working against its own objectives when it sets targets for reducing carbon emissions while charging full VAT on the efficient products that will move us towards those targets."

He added: "Removing VAT and exploring the possibility of a scrappage scheme would do a lot to get old energy and water-squandering appliances out of people's homes."

There are no energy-saving goods and services which qualify for the UK’s 0% VAT rate, or which are VAT exempt. Only the installation of energy saving materials in residential or charity premises and the installation of solar panels qualifies for the lower 5% rate. As the rules stand, domestic appliances such as fridges and washing machines are subject to the standard rate of VAT at 15% (rising to 17.5% on January 1, 2010), no matter how energy-efficient they are.

A survey published by the EU last month found that European consumers are becoming increasingly aware of environmental considerations when purchasing products. Some 46% of the survey sample thought that the best way to promote environmentally friendly products would be to increase taxes on environmentally damaging products and decrease taxes on environmentally friendly products. Britons were most in favor of such a double taxation system.

Earlier in the year, the European Commission published two studies examining how reduced VAT rates and direct company tax incentives could encourage the purchase of environmentally friendly goods by consumers and the manufacture of energy-efficient products by businesses.

The VAT study examined the potential use of reduced VAT on environmentally friendly goods and the current application of reduced VAT on energy consumption by households. However, the Commission has yet to progress proposals for VAT concessions for energy-efficient appliances.

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