Should we pay less VAT on energy-saving goods?

B&Q is asking customers to sign a petition calling for a cut in VAT on ‘essential green goods’ via giant green piggy banks placed in stores, which it plans to present to the Treasury.

It’s also currently selling energy monitors – the tabletop gadgets you can use to keep an eye on your energy consumption – with 5% VAT, absorbing the remaining 12.5%.

Meanwhile, a separate study from sustainability consultancy AEA suggests just over half of people have an appetite for green penalties as well as sweeteners. 51% were in favour of a ‘carbon tax’ on products that particularly harm the environment.

So which is it – carrots, sticks, or a bit of both – that will make us think more about environmental impact?

Energy-saving and VAT

The 5% VAT already applies if you have certain energy-saving measures professionally installed. This includes home heating controls and various types of home insulation, plus small-scale microgeneration systems like solar panels, wind turbines and heat pumps. VAT exemptions also exist for households taking advantage of government grants.

But the reduced rate doesn’t apply when you opt to buy and fit one of these items yourself – and it doesn’t include smaller products like energy-saving light bulbs or energy monitors.

You also pay full VAT (rising to 20% in January) on items such as energy-efficient gas boilers (unless through a grant scheme), double glazing and A-rated white goods.

Tax relief for energy-savers?

I’m no tax expert, but B&Q has a point. Surely the rules should be consistent for a product however it’s installed (though I’m not sure many of us would attempt to install solar panels or cavity wall insulation).

I’m less convinced when it comes to smaller items. Can we comfortably class something like an energy monitor as an ‘essential’ energy-saving product? Particularly when you don’t automatically save energy by using one – as we recently discussed, the novelty of seeing how much energy your kettle uses can soon wear off.

An energy-efficient condensing boiler, on the other hand, applies to a mass market and has immediate energy-saving potential.

With VAT rises looming, which energy-saving items do you think we should pay less tax on, if any? Or is it the way forward to put higher taxes on environmentally-unfriendly goods?