Bill Wright, head of energy solutions at the Electrical Contractors’ Association (ECA), makes the case for a cut in VAT on LEDs.
The government has tried a wide range of initiatives and incentives to encourage homes and business to be more energy efficient which, sadly, have had limited success. It seems that we need to look at an alternative approach to making energy efficiency accessible – one that doesn’t require a substantial upfront investment, as this seems to be the stumbling block for many people, until we can convince them of the benefits of making the investment.
One option is to implement a reduction in VAT on LEDs. Not a total reduction, but cutting it down to 5% – in line with recommendation for many other energy-saving products. Doing so would further reduce the price discrepancy between traditional and energy efficient lighting, which may not be large but which is still enough to dissuade consumers from buying LEDs or businesses from investing in them. This is a bizarre situation, especially as LEDs save significantly more energy - around 80% more - than traditional lighting, and lifetime payback is generally excellent. And as the Department for Energy and Climate Change is predicting savings of more than 183,000 kWhs per year after installing them at its headquarters, the potential for how much could be saved nationally is enormous.
Of course, there may be some short-term cost implications for the Treasury in terms of the lost income as a result of doing this, but, in the grand scheme of things, we’re not talking about a significant amount of money. The amount the Treasury would lose by implementing this policy – in the region of tens of millions of pounds – is a drop in the ocean for the government in terms of its total revenue from VAT.
It is also significantly less than the government has been spending on some of its more short term energy efficiency policies, such as its attempts to boost the Green Deal through the Green Deal Home Improvement Fund (GDHIF). I applaud the government’s motivation for doing this, but the reality is that it is simply spending money on an attempt to boost a struggling initiative that could be better used to offset the losses from a cut in VAT on LEDs. Enacting this policy instead of trying to prop up other initiatives would benefit consumers, businesses and the environment. Increasing sales of the products would generate the funds for companies to invest in developing the technology in LEDs, ensuring that we were leading the way on their development.
Given the economic and environmental case for cutting VAT on this technology, we need to consider how the cut could be put in place. It’s actually pretty straightforward. At present LEDs are, unsurprisingly, classed as ‘electrical goods’ and are eligible for the standard rate of VAT, so all that’s needed to change this is to change their classification. Moving LEDs into same band as energy saving technology like ground source heat pumps and solar panels would qualify them for the lower VAT rate of 5%. Doing so might open the door to claims from manufacturers of other energy saving technologies that their products should also qualify, but I believe this is a discussion worth having anyway. In fact, anything with significant energy-saving benefits should be open for a reduced rate of VAT. After all, the government is keen to cut our carbon emissions and help consumers and businesses to save money, so a move in this direction would make sense and would support their efforts to make us all more energy efficient, even if it caused some financial losses to the Treasury in the short-term.
I would hope something practically useful – and I suggest incredibly popular - along these lines is being considered by the main parties. All of the main political parties have expressed a desire for this country to be more energy efficient, and cutting VAT on LEDs seems, to me at least, to be a strong starting point as well as good move politically – regardless of which party, or parties, form the next government.