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Energy Saving Taxed Three Times More Than Energy Use

20 Oct 2001

Friends of the Earth is calling on the Government to end the bizarre anomaly whereby householders are charged more than three times as much tax for investing in energy saving as they are for using energy.

The call comes on the eve of the Government-backed Energy Efficiency Week (22-28 October) [1].

Householders wishing to invest in energy efficient products and services currently have to pay 17.5% VAT. But energy-use is only taxed at 5 per cent. Customs and Excise argues that the situation is a result of European taxation law. But FOE believes that the UK Government could reduce VAT to 5 per cent for all energy-saving materials, including DIY products, and that it should take up the issue of a zero rate vigorously in Europe.

Nearly 30 per cent of all carbon dioxide - the biggest contributor to global climate change - comes from power stations generating the electricity we use in our homes. The average household produces around six tonnes of carbon dioxide every year. Around a third of this could be saved through energy efficiency, cutting the average household energy bill by 200 a year [2].

Roger Higman, Energy Campaigner at Friends of the Earth said:
"It is ludicrous that householders are being taxed more than three times as much for saving energy as they are for using it. Politicians in the UK and Europe have said that they are committed to tackling climate change. It's high time they demonstrated this by scrapping this ludicrous tax on energy saving materials."

Another strange tax quirk means that builders installing energy efficient materials in peoples' homes only charge five per cent VAT to their customers, while DIYers pay a full 17.5% if they fit these products themselves. FOE is backing a campaign by B&Q highlighting this. During energy efficiency week B&Q is paying the VAT on loft insulation it sells [3].

Notes:

1. Energy Efficiency Week has been organised by the Government-backed Energy Saving Trust. www.saveenergy.co.uk
2. Figures from the Energy Saving Trust.

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