Home > Press releases > 1998
10 Mar 1998
Whitehall sources have confirmed that the Treasury is backing down on
Gordon Brown's promise to cut VAT on energy saving materials, Friends
of the Earth revealed today. The news comes as Parliament's Environmental
Audit Committee publishes its first report,which is likely to call for
the VAT change as a priority measure in the Budget. The Treasury is claiming
that EC VAT rules prevent the change, a claim dismissed by FOE as “utterly
bogus”.
VAT at the standard rate was imposed on energy saving materials (like
insulation and heating controls) in 1989. Debating the Conservative Government's
1996 Budget, Treasury front-bencher Dawn Primarolo (now Financial Secretary)
supported an amendment to reduce the rate of VAT on energy saving materials
to 8% “in the name of justice, jobs,democracy and energy efficiency”.
In the 1997 Budget VAT on domestic fuel was cut to 5%, but energy saving
materials continue to be taxed at 17.5%. The Government is still refusing
to implement the cut it supported in Opposition, which would cost only
about £40,000,000 a year. Britain has one of the worst records on
winter deaths in the developed world, more than twice as high a rate as
the USA, Denmark and West Germany, and higher even than former Communist
countries such as Bulgaria. Most of the 30,000 to 60,000 extra deaths
each winter are believed to be related to cold weather illnesses including
flu, pneumonia and hypothermia.The elderly are particularly likely to
be affected, partly because many cannot afford to heat their homes properly
or install effective insulation.
However, the Chancellor announced a limited concession in his 1998 pre-Budget
statement. Although insulation materials generally would continue to attract
VAT at the higher rate, he said that “VAT on the installation
of energy saving materials under existing grant schemes, such as the Home
Energy Efficiency Scheme, will be cut from 17.5% to 5%in the Spring Budget
of 1998". This announcement received the biggest cheer of the
day from Labour back-benchers.
But the Treasury is now believed to be backing away even from this watered
down commitment. Exceptions now being considered to the VAT cut include
large parts of the Government's own Home Energy Efficiency Scheme. Under
this scheme, pensioners can
get a quarter of the cost of insulation measures in their homes paid
for by Government grant. The Treasury is planning to continue to charge
VAT on spending under this scheme at the standard rate. Low income families,
however, may get a VAT reduction. How this convoluted scheme will be policed
has not been explained. Schemes run by local authorities and by the Government-backed
Energy Saving Trust may also be excluded from the VAT cut. At least sixteen
local councils have already written to the Treasury protesting at this
plan.
The Treasury claims that the EU Sixth Directive may prevent a general
VAT cut on energy saving materials. But in Opposition, Dawn Primarolo
said: “we disagree ... that the proposals would be ruled out by
the Sixth Directive, but we are prepared to put it to the test”.
In 1995 Belgium reduced its VAT rate on energy saving materials
from 22% to 6%without protest from the Commission.
A general VAT reduction on energy saving materials could lead to a 10%
in sales,according to industry estimates. It would increase jobs in insulation,
cut energy consumption, and cut greenhouse gas emissions.
Commenting, FOE Executive Director Charles Secrett said:
“It is hard to accept that Gordon Brown could be running away even
from his very modest promise on VAT and energy saving materials. This
cut would create jobs, reduce global warming, and of course, cut the appalling
number of deaths each year from extreme cold. I hope the Treasury recovers
its nerve before Budget Day. Environmentalists, pensioners,and fuel poverty
campaigners will find it hard to forgive them if they don't”.
Contact details:
Friends of the Earth
26-28 Underwood St.
LONDON
N1 7JQ
Tel: 020 7490 1555
Fax: 020 7490 0881
Web: www.foe.co.uk/feedback.html
Media team
