One of the latest developments in the government’s efforts to reduce greenhouse gases is to rethink their rate of VAT on residential energy. Ministers were advised that they should raise the rate of VAT to encourage households to be more energy efficient.
At a time when the economy is at a low point, many are disturbed at this latest effort to increase taxes when so many are having difficulty paying the taxes they now have. It is unclear how they can raise VAT whilst ‘shielding lower income households’ but that is how it was phrased when put before them.
The study was conducted by the Organisation for Economic Cooperation and Development who advised that government’s policy should be re-evaluated. Current policy does allow for a small amount of reduction in greenhouse gases but these are not sufficient to meet long term goals.
At the moment households are subject to a 5% VAT instead of 20% to save them from significantly higher energy bills. However, the study contends that these lower rates do not encourage households to reduce energy consumption or to improve energy efficiency because the bills are held lower. It is their contention that raising taxes would bring the UK up to a par with Japan, France and Germany in terms of green energy.
It is quite unlikely that government will follow the advice outlined in the report at this time because the cost of energy is rising quickly and added VAT may put a great number of financially burdened households even deeper into debt. T
here are other proposals in the report which may be received more amiably, but there is still a focus on helping households with energy efficiency in order to meet the green deal scheme with a deadline of 2020. The UK is already committed to being the toughest developed country on carbon targets so further steps will serve to keep them in their current leadership position.
