New research from uSwitch.com reveals that 98% of people would like to see the Government take action to help consumers by axing the VAT on household energy bills. But while the move would be good news for British consumers, unfortunately it may also fall foul of EU law:
98% of people want the Government to ease the squeeze on household finances by axing the VAT on energy bills[1]
53% would use the additional money to keep warm in the winter, while 47% would be able to stop rationing their energy use[2]
Over one in ten (14%) would put the saving on VAT towards the cost of insulating their home – a further 26% would use the money on other energy efficiency measures[2]
No going back: the right to zero-rate household energy in the UK was signed away in the Budget of 1993[3]- today’s Government could have a tough battle with the EU getting it reinstated again.
British consumers are backing calls for the Government to axe the VAT on household energy bills, according to new research by uSwitch.com, the independent price comparison and switching service. With household finances being squeezed, 98% of people think the Government should help consumers by removing the VAT on energy bills[1]. 83% say that energy is as essential as water so should be treated the same for VAT[4].
The move would see energy zero-rated for VAT, the same as water, taking 250,000 households out of fuel poverty[5] and stemming the growing tide of people going cold in the winter. Axing the VAT on energy bills would save households £60 a year on average[6], which when added to recent energy price cuts would see bills tumble by almost £100 a year. This saving would alleviate the pressure on consumers – over half (53%) would use this money to keep warm in winter while 47% would be able to stop rationing their energy use[2]. It could be a lifeline for the 19.5 million households (75%) that have gone without heating at some point this winter to keep their energy costs down[7].
Removing the VAT on household energy bills would also help to tackle mounting concerns about the ongoing affordability of energy in the UK. Over three quarters of people (79%) say that a £100 reduction on their energy bills would make their bills more affordable[8]. But more importantly, with energy costs spiralling, many would look to invest the money in making their homes more energy efficient which would help to reduce their household energy bills even further. Over one in ten (14%) would put the VAT saving towards insulating their home, while a further 26% would invest it in other energy efficiency measures[2].
The move would undoubtedly help British consumers, but it now seems the Government might not be able to help even if it wanted to. According to HM Revenue & Customs, under EU agreements the UK can retain zero-rates that were in place on 1st January 1991, but it cannot introduce new zero-rates or extend existing ones. Incredibly, household energy was previously zero-rated in the UK – but this was stripped away as part of the 1993 Budget[3]. As a result of this short-sighted move, today’s Government would have a tough battle with the EU getting zero-rate VAT on household energy reinstated again in the UK.
Ann Robinson, Director of Consumer Policy at uSwitch.com, says: “While the call to axe VAT on household energy bills has hit a chord with consumers, it looks to have hit a rock with the EU. If the Government wants to give householders respite from the high cost of energy it will have a battle on its hands and this will be a blow to those who would have seen real benefit from the speedy removal of VAT.
“Given the current squeeze on family finances, many will be astonished that our right to zero-rate VAT on household energy bills was signed away in the Budget of 1993. This short-sighted move smacks of having given the family silver away and will be small comfort to those left struggling with high energy bills today.
“Even if the Government doesn’t want to take up this fight with the EU, I would still urge it to consider seriously how it can now relieve the pressure on consumers. Our research shows that many would have used the VAT saving on their fuel bills to make their homes more energy efficient. This is a key step in the battle against the high cost of energy, so if the Government is serious about helping consumers it could pledge to use the VAT raised on household energy bills to make homes more energy efficient.”