Scrap lower VAT level for household energy?

Scrapping the lower level VAT rate on household energy would give homeowners more incentive to cut their energy use, claim economics researchers. The Treasury’s VAT on domestic energy is currently […]

Register now!

By Vicky Ellis

Scrapping the lower level VAT rate on household energy would give homeowners more incentive to cut their energy use, claim economics researchers. The Treasury’s VAT on domestic energy is currently at the reduced rate of 5%. A report released by the Organisation for Economic Cooperation and Development (OECD) said “the lower VAT rate on household energy should be abolished to achieve more uniform carbon taxation.”

And the academics at London School of Economics who wrote the report warn against any sudden rise: “Any rise in VAT would impose significant new cost burdens on households at a time of slow real income growth, and may need to be accompanied by targeted support for the most exposed groups.”

A Treasury spokesperson denied that a rise was on the cards: “The Government is not considering increasing VAT on household energy.”

The spokesperson added that the latest Budget’s carbon price floor “will create a credible long-term framework to incentivise investment in low-carbon electricity generation by reducing revenue uncertainty for generators and improving the economics of low-carbon investment.”