The proposal to levy VAT on fuel is regressive because low-income households, including those whose members incur higher heating costs (due to disability, age, unemployment or the presence of young children) spend proportionally more of their income on fuel and power.
The Treasury has argued that the imposition of VAT will act as a 'price signal' to households to encourage them to reduce fuel use and polluting emissions through improved energy efficiency.
This may well be true for well-off households. However, low-income households find it hard enough paying for fuel at current prices, let alone having resources to invest in energy efficiency improvements. They will therefore have no choice but to suffer further fuel poverty and hardship if they are forced to bear the burden of such fuel price increases.
The Government has promised compensation to some, but not all, low-income households. It has been estimated that the Exchequer will reap some pounds 800m a year from low- income households as a result of the new VAT at 17.5 per cent. In our view, any compensation scheme true to its name must return this amount in full to these households.
We call on the Government to undertake immediately a full and open consultation process to ensure that, in delivering compensation, all vulnerable groups are fully protected from the impact of this tax.
In addition, the Government should announce a major expansion of investment in upgrading the energy efficiency of low-income households. It is only by such investment that warmth will become affordable to low-income households and the regressive impact of the tax will be reduced.
CHARLES SECRETT executive director, Friends of the Earth; SALLY GREENGROSS, director, Age Concern; SALLY WITCHER director, Child Poverty Action Group; FIONA REYNOLDS, director, Council for the Protection of Rural England; LORNA REITH, director, Disability Alliance; ADAH KAY, director, Family Service Units; IAN POWE, director, Gas Consumers Council; CHRIS ROSE, programme director, Greenpeace; SUE SLIPMAN, director, National Council for One Parent Families; ANDREA COOK, director, Neighbourhood Energy Action; BERT MASSIE, director, Royal Association for Disability and Rehabilitation; GILL OWEN, Winter Action on Cold Homes
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