UK MPs have called for reduced VAT on energy-efficient home improvements. The parliamentary Environmental Audit Committee (EAC) recommends incentives to promote enhanced home insulation and more efficient heating, as well as steps to make electric cars and other electric goods more affordable.
The EAC report also recommends that the UK government consider applying carbon taxes.
The committee’s chair, Philip Dunne, insists that an effective tax framework is essential for ensuring the UK meets its ambitious climate goals.
“A tax system fit for net-zero Britain is key. It will encourage innovation, give confidence to the sector and support companies to make the low-carbon transition,” Dunne said.
Charting the Post-Covid recovery
The EAC report suggests that any Covid-19 economic stimulus package should be carefully designed to support environmental goals. The Covid-19 crisis presents a chance to ‘grow back better’ and to align economic policy with the UK’s goal of reaching net-zero carbon emissions by 2050.
The report also recognises that climate-friendly economic policy is important from a public health perspective. It notes that zoonotic diseases are increasing globally due to factors such as deforestation and agricultural expansion.
Aligning economic and climate policy is clearly no simple matter. For instance, a new coal mine project in Cumbria was recently placed under review. Climate activists had expressed concern that the mine development conflicted with government’s stated commitment to reducing carbon emissions.
Balancing VAT incentives
Previously, EU rules constrained UK policy on VAT exemptions. Following Brexit, the UK has more leeway to develop its own green VAT policy.
However, developing the right balance of VAT incentives is an ongoing process.
“The Government should use the latitude it enjoys following the UK’s exit from the European Union to reduce rates of VAT on repair services and products containing reused or recycled materials to increase the circularity of the UK economy,” the EAC report found.
The report also suggests that “Government should also adopt a VAT reduction on home upgrades to incentivise installation of low-carbon domestic technologies and improve energy efficiency of homes.”
Green activists have expressed concern that existing VAT rules incentivise new construction over refurbishment. The EAC VAT recommendations could help correct that misalignment.
VAT advice for a changing planet
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