Energy UK has urged Rishi Sunak to use the government’s post-Brexit freedom on VAT rates to cut the tax on energy bills.
In its budget submission to the chancellor of the exchequer, the trade association for the energy industry recommended that the Treasury consider the role of the tax system as part of its ongoing net zero review into the costs and benefits of achieving the UK’s 2050 emissions reduction target.
In particular, Energy UK said this should focus on the impact of VAT on household and business electricity and gas bills following the UK’s exit from the EU VAT area.
Households currently pay a reduced VAT rate of five per cent and most businesses the full 20 per cent.
The submission said energy costs are a “significant part of domestic outgoings and a significant concern for many consumers” and zero-rating supply could reduce the average family’s outgoings by £60 per annum.
In addition, the trade body said the Treasury’s net zero review should examine the imbalance of policy costs between electricity and gas bills.
Energy UK called on the Treasury to reinstate the reduced rate of VAT discount of five per cent for all energy efficiency products and microgeneration measures and installations, including solar panels, and said the list should be expanded to include storage, air-source heat pumps and EV charging equipment.
The rate on energy saving materials was increased to 20 per cent in 2019 following a challenge by the EU.
The proposed cut would provide households with an incentive to replace gas boilers, which are currently subject to a five per cent VAT rate, with heat pumps.
Furthermore, the association said it “strongly supports” the UK linking via the EU energy trading system (ETS) to the trading bloc’s bigger carbon market “as soon as practicable”.
In the run up to the first auction for the UK’s new stand-alone ETS, which is not due to take place until the second quarter of this year, it asked the government to mitigate distortions in the power generation market by publishing its proposed methodology for calculating the level of the carbon price support.
On energy efficiency, Energy UK called for the government to provide a long-term framework by implement its manifesto commitment to launch a multi-year Home Upgrade Grant programme this year.
The budget takes place on 3 March.