Increase VAT on Energy

“To help the transition to a low-carbon economy, VAT on gas and electricity should rise to 20%.”

This is what needs to be said and I will salute the politician who has the courage to say it.

The world shares the challenge of curing a dangerous addiction. Fossil fuel is something we feel that we cannot do without, despite the negative consequences and despite there being other ways to live our lives. Breaking the habit will be hard whilst we live in societies where addiction is regarded as normal. Realization is growing that burning fossil fuel is dangerous with potentially severe consequences over the long-term but that does not make it any easier to overcome the short-term craving for the next fix.

Across the world, governments subsidise fossil fuel out of political expediency, bowing to the demands of the fossil-fuel junkies. This is not quite as bad as subsidising pushers to keep the street price of heroin affordable, but the analogy is not entirely misplaced.  Higher prices for fossil fuel are a necessary precondition to force the transition way from its use. This underpins the business case for low-carbon energy generation and investment in efficiency measures as well as providing the means to cajole people into appropriate lifestyle change.

In the UK, VAT on gas and electricity is set at 5% compared with a general rate of 20%. This is in effect a subsidy, which becomes particularly invidious when you consider that, if the European Commission gets its way, VAT at the full rate will be charged on energy-saving materials used to insulate homes. It is high time that politicians removed this anachronism and raised VAT and gas and electricity to 20%. The logic is inescapable but the political fallout could be huge.

The way to sell this change of policy to a general public, concerned at how to pay for their next ‘fix’, is to focus on how the extra tax will be deployed. A cynic might argue it should be spent on whatever bribe will stifle dissent, but a more principled approach would be to focus on increasing investment in low-carbon public infrastructure and support for efficiency measure such as the insulation of homes of the less well off. The other way is just to do it, and face-down the political consequences, but such direct and decisive action does not fit with modern emasculated politics.