Climate: Move to cut VAT on `green products' blocked

The Treasury is poised to reject a green taxation measure which would help tackle the threat of climate change. Green groups are furious, says Nicholas Schoon, Environment Correspondent. Environmental groups have long been campaigning for a cut in Value Added Tax on products which help people to save energy, like insulation.

If such products were cheaper, and more were sold, that would cut the amounts of coal, oil and gas being burnt in Britain, and in turn lower UK emissions of climate-changing carbon dioxide.

It would also end the ``absurd anomaly'' whereby VAT on heat and light is now just 5 per cent, but VAT on goods which save fuel and power remains at the full 17.5 per cent. This tax distortion actually works to discourage energy efficiency.

In Opposition, Labour had supported cutting VAT on these "green products", such as low energy light bulbs, thermostatic radiator valves and cavity wall and loft insulation.

But in government it has failed to act. Gordon Brown's first Budget, last July, only cut VAT on energy, and environmentalists raged.

The Treasury did, however, announce a review into the scope for cutting the tax on energy saving products. It is being led by Customs and Excise, which administers VAT and was due to be completed by the end of this month.

The Independent understands HM Customs has come down firmly against cutting the VAT to 5 per cent which would have put energy saving equipment and products on a level playing field with fuel.

The move would have cost the Treasury about pounds 15m in lost revenues. In its report, Customs says that if the Government's intention is to help poor families and pensioners to save on fuel bills, then it would be much more effective to spend pounds 15m directly on helping them rather than on financing a tax cut which every household could benefit from. This was the Government's stated aim in launching the VAT review.

But green groups say this misses the point of cutting VAT on energy saving goods. It could only ever be effective as a green measure, not as one which fights fuel poverty.

Friends of the Earth's director Charles Secrett said: ``Making insulation cheaper would send a political signal from government that they want everyone to be environmentally responsible and do something about global warming.''

Andrew Warren, director of the Association for the Conservation of Energy, said: ``The full VAT on energy saving goods is an absurd anomaly which makes a nonsense of any attempt to use the tax system to help the environment.''

Customs and Excise declined to comment on its findings, saying the review was not yet complete.

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