Encourage efficiency with zero VAT, scrappage

The Government should encourage households to switch to new, more energy-efficient appliances by entirely removing VAT from such devices and instituting a scrappage scheme similar to that adopted for the car industry, according to the British Retail Consortium (BRC).

Such strategies could help citizens both cut their fuel bills and reduce their carbon dioxide emissions, the organisation said.

As the Chancellor begins drafting this autumn’s Pre-Budget Report (PBR), the BRC has written to Alistair Darling to set out its priorities for “A Balanced Approach to Sustainable Recovery.”

The BRC’s plan for creating incentives for households to improve their energy efficiency is one of a set of proposals in the document. The recommendations are intended to support retail jobs and job creation, revive high streets and promote retail investment — as well as tackle climate change and reduce customers’ fuel costs.

In its submission to the Chancellor, the BRC wrote, “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.”

Independent economic models for the BRC indicate that CO2 emissions could be reduced by 1.3 million tonnes each year by 2020 as a result of removing VAT from today’s most energy-efficient equipment. That is almost one per cent of domestic emissions. But the move would take reductions beyond that as manufacturers further develop technology and compete for the ‘Energy Saving Recommended’ performance standard and the competitive advantage of zero VAT.

The reform would cost £507 million per year in lost VAT receipts. This is roughly equal to the cost over just two weeks of the across-the-board VAT reduction introduced last December.

“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,” said Stephen Robertson, director general of the BRC. “Retailers are already doing their bit to cut carbon but homes are responsible for 27 per cent of the nation’s emissions. Helping householders improve their performance has to be the next step.”

Robertson continued, “A modern, efficient fridge-freezer uses less than half the energy of a 1995 model. Over its lifetime, it can pay for itself but having to find the cost up front puts customers off upgrading — particularly in a recession. 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.”

The EU Commission has failed to progress its proposals for VAT concessions for energy-efficient and energy-saving products. That means they are subject to full standard rate VAT (due to be 17.5 per cent from 1 January 2010).

In the UK there are 15 million fridges, freezers and washing machines over ten years old.