VAT should be removed entirely from energy efficient appliances and a car-industry-style scrappage scheme considered, according to the British Retail Consortium.
This, it argues, would help households cut their fuel bills by switching to low emissions-generating products.
The BRC wrote this week to the Chancellor of the Exchequer, setting out its priorities for A Balanced Approach to Sustainable Recovery.
A petition to introduce a scrappage scheme for boilers is already on the Downing Street website, the brainchild of plumbers merchant Mick Williams.
The BRC’s plan for creating incentives for households to improve their energy efficiency is one of a set of proposals in the document. They are designed 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 says, “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 modelling for the BRC indicates 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.
Stephen Robertson, British Retail Consortium Director General, said: “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.
“Retailers are already doing their bit to cut carbon but homes are responsible for 27% of the nation’s emissions. Helping householders improve their performance has to be the next step. 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.