The trade body representing water companies across the UK was responding
to a European Commission (EC) consultation paper reviewing legislation
on VAT reduced rates for water, aimed at simplifying the tax across
Europe.
Water and water resources are currently subject to a zero rate
exemption in the UK and Water UK said that while it “recognises the
theoretical case” for removing reduced or zero rates, there are many
reasons to uphold the existing system.
If VAT were imposed on water services, household bills in the UK
would increase by 20 per cent (UK VAT rate). There would also be an
increase in bills for non-household customers for the sectors/activities
that are zero-rated. This could have a significant impact on household
customers in particular and on the water industry, the trade body said.
Water UK said with this impact on household customers’ ability to
pay, there would be an increase in the level of bad debt as well as a
reduction in the perceived ability to pay for other improvements that
the water industry undertakes.
An argument for the review is that different VAT rates act as an
obstacle to the proper functioning of the internal market. However,
Water UK said supplies of water and wastewater services in the UK are
not subject to competition from elsewhere in the EU so there would not
be an impact on competition between member states.