The Guardian features an article this morning that tells us a great deal about the priorities of the UK government when it comes to the climate crisis. As they note:
Homes hoping to shrink their carbon footprints by installing a solar-battery system face a steep VAT increase from October under new laws proposed by HMRC.
The Treasury put forward legislation on Monday to raise VAT for home solar-battery systems from 5% to 20%, on the same day that MPs are debating the government's new net zero carbon target for 2050.
And as they add:
Meanwhile, home coal supplies will continue to receive the lower VAT rate.
It's as if their policy is ‘let us burn.'
In my book The Joy of Tax I described tax as the single most powerful mechanism available to a government to influence behaviour and shape the society it wants in what might be called ‘normal times'. I stand by that. In which case this decision tells us just how seriously this government is really taking the climate crisis.
I suggest that you worry, a lot. And most especially for younger generations.
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[…] have already referred to my book The Joy of Tax once this morning. Let me do so again. In it I described tax as the single most powerful mechanism available to a […]
The logic is the same as charging VAT on buying a jumper, a water butt or some brake parts for your bicycle, all of which we might want people to buy more of if we are to restrain consumption of non-renewables.
Which does rather lead into the obvious point of mainstream climate economic science, which is the best way to restrain consumption of CO2 is a tax on its use, and the best way to encourage other countries to do likewise is to make it assymetric.
Import some steel from a country that doesn’t apply a CO2 tax in its energy supply chain – we slap a CO2 tariff on that to reflect the social cost. Import steel from a country that does apply a CO2 tax – then no carbon tariff.
Freedom to apply CO2 taxes and tariffs in this way does rather mean leaving organisations that prevent us doing so.
And so you create asymmetries that encourage carbon efficiency
While I agree that the change in VAT rate is ridiculous it is not a choice of HMRC. The fault lies with the European Court of Justice who have ruled that the lower VAT rate on energy saving materials breaches EU law. This demonstrates a breathtaking level of hypocrisy given the current climate emergency.
And so too does the inconsistency
Even after everything that has happened the tories still can’t help themselves but to try to blame the EU for their own incompetencies.
I’m sure there are plenty of ways to subsidise new solar without breaching E.U. rules, but not when you only care about unprecedented levels of support for the fossil fuel industries.
Actually, like all courts the European Court interprets current legislation. The fault clearly lies with the EU parliament, the Council Ministers, the electorates and the British government not seeking some sort of opt-out or a work-around.
Shouldn’t the title of this post read
“The EU’s new policy on the climate crisis is ‘let us burn’”
The Guardian article says
“HMRC has blamed EU tax laws for the planned rise because they rule out lower VAT rates for energy saving equipment under state aid rules.”
“The European court of justice ruled in 2015 that energy saving materials should not have been receiving the reduced rate of tax.”
So the government can’t really be blamed for this one – they have to follow EU law and even tried to challenge it and lost!
They persist with coal
And that was my point
Just a note on the history. Fuel and power was zero rated until 1990, when VAT at the standard rate was imposed on non-domestic use.
Domestic fuel was taxed at 8% from 1994. Part of the explanation given at that time was the need to cut carbon emissions. The Conservative government proposed to apply the standard rate from 1995, but that proposal was defeated, and the new Labour government cut the rate back to 5% in 1997.
It was known at and indeed before the time it was introduced that there was no justification in European law for a reduced rate on energy-saving materials. An amendment is needed to what is now Annex III to the Principal VAT Directive 2006/112. The failure to do that is a political failure, not the fault of HMRC.
But that does not explain the differing treatment of coal now
Richard,
That is coal for home use. Which means for barbeques etc, unless anyone has a house heated by it. Which I think is illegal under planning reulations these days anyway.
The UK is one of the lowest users of coal fired energy in the EU and even the world now. Less than 5% of it I understand.
The EU still has coal making up nearly 40% of it’s energy mix.
Still, don’t see how you can blame the government for an EU ruling, which the government took to court and lost – against the EU.
Sorry – but I do blame them
And will
So you are blaming them because……?
Is it because they are Tory? Or is there some other reason, because they got overruled by the EU, and at the moment we still have to follow EU law. And there I though you were all for remaining in the EU!
We can increase the VAT rate on coal….
Domestic use of coal is currently treated for VAT in the same way as domestic use of fuel oil , gas and electricity. You could increase VAT on all of these to 20% from the current 5%, but that might be unfair to the environment as gas creates less CO2 per unit of energy produced, and electricity even less if it is generated from some combination of nuclear, gas and wind.
You could increase VAT on domestic coal only, but that would be unfair on the poorest, for the sorts of households that still have coal boilers are in the poorest deciles. I’m guessing assaulting the poor who have kept their decrepit their few remaining coal fired boilers in service all this time is not your desired outcome.
A CO2 tax gets round these issues and uses the pricing of fuel to reduce usage according to the harm done.
Look – we are so wrapped up in BREXIT this last 2-3 years the Government probably hasn’t had enough time to go back to the EU and tell them that we are not going to follow this particular path – just like we didn’t with the Euro and Social Chapter I recall. Or, our method of delivery domestically fouls things up:
https://www.theguardian.com/commentisfree/2018/dec/27/four-reasons-jeremy-corbyn-wrong-eu-state-aid
As you have often said VAT is a regressive tax. I live in a rural area where there is no gas supply. Homes in this area use heating oil or coal for heating. Why should they pay more VAT than gas users? I would guess that the carbon dioxide emissions from domestic coal use are a tiny proportion of total emissions. As has been repeatedly stated, the nonsense that renewable energy incurs a higher VAT does not lie with the government but with the EU. I find it hard to defend the current government and have never voted tory in my life but blame must be ascribed to the correct source.
Whoever is to blame for this senseless change in legislation from a climate change perspective it is irrelevant. Increasing the cost of CO2-sensible strategies for householders does not compute.
Will we see even more tortuous strategies evolve to avoid this? Householders creating limited companies to generate and supply electricity, registering for VAT, and claiming back the 20% input VAT from the purchase of battery technology?
And this nonsense does not end with VAT and batteries. After the initial rush to the head when the taxation on company car usage was reduced for CO2 efficient vehicles, benefit in kind charges and capital allowances for lower CO2 emission vehicles are now increasing.
Humanity needs to re-boot. Its prime directive, if we are to survive, should be to lower CO2 emissions not focus on short-term agendas that do the exact opposite.
If the accountancy profession, of which I am a part, needs material to inspire ingenious tax reduction strategies, perhaps it should refocus away from net worth, earnings and wealth accumulation and concentrate instead on those that reduce our carbon footprint.
I despair. It really is difficult to see that this will end other than badly.
Bob
See what I will be publishing tomorrow
Richard
You cannot blame this change on EU or ECJ, the ruling is open to interpretation, see
https://www.theguardian.com/commentisfree/2019/jun/26/brexit-green-policies-vat-solar-batteries
Responsibility lies completely with UK government.
Thanks Charles
Appreciated
Richard
Please see latest article from Molly Scott Cato, Green MEP:
https://www.theguardian.com/commentisfree/2019/jun/26/brexit-green-policies-vat-solar-batteries.
Grateful for any thoughts on this?
Paul Charman
Molly’s right
That’s my thought