VAT and Energy Conservation (Hansard, 28 March 1991)

§ The Minister of State, Department of Trade and Industry (Lord Hesketh)
My Lords, VAT is a broad-based tax on expenditure in the domestic economy and most items, including energy conserving goods, are chargeable with VAT.

§ Lord Hatch of Lusby
My Lords, I realise that that is the position at the moment. However, is the noble Lord aware that in the fourth quarter of last year energy use in this country, despite the recession, increased by 1.8 per cent., thus increasing carbon dioxide emissions? Is he further aware that over the past two years sales of energy conserving equipment have dropped by 28 per cent. and the Office for Energy Efficiency has had its budget cut? I realise that the budget has now been restored. However, would it not be in the interests of their own environment White Paper if the Government were to encourage energy conserving equipment by reducing or abolishing VAT on it?

§ Lord Hesketh
My Lords, the first problem with the noble Lord's suggestion is that it is very difficult to define "energy conserving". I was in East Germany last week; I saw a number of very small cars called Trabants. They are very slow, use very little fuel and create a huge amount of pollution. But it would be 1217 possible to claim that they save energy. However, it is also fair to say that the failure to raise vehicle excise duty in the past six years and the increase in the differential on unleaded fuel, which now runs at some 18.5 pence per gallon, should be seen as the reverse of the point behind the noble Lord's Question. By increasing fiscal prices one can try to achieve the same effect of encouraging people to reduce pollution and, in the case of diesel, to reduce fuel consumption.

§ Lord Stoddart of Swindon
My Lords, is it not a fact that, unlike the Trabant car seen by the noble Lord in East Germany, many products are plainly energy saving? Do not the Government believe that it would he in their interests and in the interests of the environment to reduce or zero rate VAT on those products? Will the Minister come clean? Perhaps the Government would like to act but are constrained by the EC which does not want further extensions of zero rating.

§ Lord Hesketh
My Lords, I am more than happy to come clean on the matter. I should point out to the noble Lord, Lord Stoddart, that I did not actually drive a Trabant. Indeed, I am not sure that I would have fitted into one. However, it is true to say that the EC sixth VAT directive allows only those VAT reliefs in force at 31st December 1975 to be maintained and precludes the introduction of new zero rates.

§ Lord Williams of Elvel
My Lords, given the fact that the price differential policy is accepted by the Minister, would it not be possible to proceed in another way; for example, by building on the experience of lower lead-free petrol charges compared to those for leaded petrol as regards other energy saving goods, thereby effecting what my noble friend wants?

§ Lord Hesketh
My Lords, I am sure that the noble Lord, Lord Williams, will accept that there are many other taxes raised by the Treasury. There is a great deal to be said for the simplicity of the current VAT arrangements as opposed to making them more complicated.

§ Lord Hatch of Lusby
My Lords, the Minister is a little disingenuous when he suggests that there is some dubiety about what is energy saving. Of course, it is possible that there is. Indeed, the Government themselves have listed certain equipment as being energy saving. They have their own energy conservation office to encourage that policy. In view of the advice given by the Government's previous environmental adviser—namely, Professor Pearce—on the basis that the polluter pays, surely there is a very strong case (especially as regards the Government White Paper and the experience of unleaded petrol) for reducing or abolishing VAT on those items of equipment which can save energy instead of, as has happened over the past week, increasing VAT on this equipment and on other items by 2.5 per cent.?

§ Lord Hesketh
My Lords, I cannot believe that there is a finer example than the freeze on the vehicle 1218 excise duties over the past six years and the increase in taxation on petrol which results in the polluter—that is, he who uses the most—paying more.

§ Lord Beloff
My Lords, does my noble friend the Minister agree that the noble Lord, Lord Hatch of Lusby, might set an example by conserving his own energy and not inflicting speeches upon this House during Question Time or during the early hours of the morning?

§ Lord Hesketh
My Lords, I can only say that I believe it is quite impossible to direct environmental strategy by using the blunt tool of VAT on its own.

§ Lord Stoddart of Swindon
My Lords, I should like the Minister to confirm and underline his previous reply to me. Even if he and the Government agreed with my noble friend Lord Hatch that it was desirable to zero rate any energy saving appliances, would they not be constrained from so doing by EC directives and regulations?

§ Lord Hesketh
My Lords, I am almost certain that neither I nor the Government will be agreeing with the noble friend of the noble Lord, Lord Stoddart of Swindon.

§ Lord Hatch of Lusby
My Lords, the Minister is concentrating solely on cars and petrol. However, there are many other machines and much equipment which use energy. Indeed, many such items were mentioned in the Government's White Paper. Therefore, will he not agree that if the Government are serious about the expressions of intent which they declared in that White Paper, they would be doing something to reduce the cost of such items and to encourage people to buy energy saving equipment?

§ Lord Hesketh
My Lords, I am sure that if Members of the Benches opposite adhere to the clarion call of the noble Lord, Lord Hatch, they will, in the unlikely event that they ever receive the endorsement of the country at a general election, be introducing the imposition of VAT on domestic fuel.