Memorandum from the Energy Saving Trust
This is the response of the Energy Saving Trust
(the Trust) to the Environmental Audit Committee's inquiry into
the Pre-Budget Report (PBR 2003). This response should not be
taken as representing the views of individual Trust members.
The Trust was established as part of the Government's
action plan in response to the 1992 Earth Summit in Rio de Janeiro,
which addressed worldwide concerns on sustainable development
issues. We are the UK's leading organisation working through partnerships
towards the sustainable and efficient use of energy by households,
small businesses and the road transport sector.
The Trust welcomes the EAC's inquiry and the
opportunity to submit evidence. The section of the pre-budget
report of relevance to our work is Chapter 7—Protecting
the Environment, and within it the sections on domestic energy
efficiency, and the taxation treatment of alternative fuels. It
is these sections that form the focus of our response to this
inquiry. Other issues, which the Trust would like to see addressed,
such as further reform of Company Car Tax and Vehicle Excise Duty,
were not addressed in the PBR.
DOMESTIC ENERGY
EFFICIENCY
The Trust was very disappointed that the pre-budget
report 2003 did not signal any immediate fiscal incentives to
encourage consumers to save energy. We recognise the constraints
that the 6th VAT Directive places on reducing the rate of VAT
for the purchase of energy efficiency products. However no such
constraints exist for our proposed inefficiency charges for high
energy consuming household appliances. Kitchen appliances are,
thanks to the Energy Efficiency Commitment (EEC), now comparable
in retail price across all efficiency levels (A-G) so those on
low incomes are still buying inefficient appliances without realizing
that they will have higher running costs for the following 10
years or so. By imposing a 10% product charge on appliances rated
D and below, consumers will be clearly directed to efficient products
which will be cheaper and will reduce the ongoing costs of the
poorest in society. Introducing inefficiency charges would completely
and rapidly transform the appliance market such that only A-C
products would be available on the shelves. This would have a
very positive effect; reducing CO2 emissions by 22,634 tC/yr,
saving households a total of £12.7 million/yr[6]
on their fuel bills, and immediately increasing HMT revenue by
£57 million per year (although this would rapidly decline
as manufacturers change their product lines).
As well as inefficiency charges for inefficient
appliances the Trust would also like to see them for inefficient
lighting. The imposition a 50p inefficiency charge on tungsten
GLS light bulbs would help to redress the relative price premium
between CFLs and conventional bulbs[7]
and also help to stimulate consumer interest in CFLs. We calculate
that an inefficiency charge would result in carbon savings of
41,632 tC/yr[8],
and increase HMT revenue by £82.5 million per year.
As noted above the Trust is acutely aware that
Government's ability to reduce VAT on energy efficient products
hinges on the outcome of the 6th VAT directive negotiations, but
ideally we would like to see the inefficiency charge matched by
a VAT reduction on some A rated products.
In particular, the Trust believes that 5% VAT
should be offered on:
— The most efficient products in
their class (A+ and A++ for cold appliances) to incentivise
continuous progress on improving the energy efficiency of new
products and introduce the most efficient products to the UK,
that are not currently marketed here.
— CFL light bulbs to encourage
market transformation.
— A & B rated condensing boilers
through to 2006 to help smooth the market growth in 2004-05
from the current 17% new market share to around 80%[9].
— Micro CHP to help kick start
the market in these new highly efficient heating and power systems.
We were however pleased to note that this is being looked at in
the corporation tax review.
— DIY energy efficiency materials
to allow householders to buy loft insulation at the same VAT
rate as when the insulation is laid by an installer.
All the tax incentives outlined above are specifically
to tackle barriers to purchase of defined products. Developing
a whole house solution is needed to stimulate action on the more
hidden energy efficiency measures—especially cavity wall
and solid wall insulation. As energy audits become obligatory
in 2005-06 with the introduction of the Home Condition Report
in England and Wales, we believe this would enable Government
to introduce stamp duty rebates on energy efficiency work
carried out by a home mover. In addition, and to incentivise householders
not moving home, we favour a tax incentive, as is available in
France and other EU countries. We also recommend allowing private
landlords to offset energy efficiency work against their tax return
and to benefit from capital allowances, which would benefit the
landlord as well as the tenant (the home energy user).
In addition, the Trust would like to see the
longer-term consideration of links between Winter Fuel Payments
and energy efficiency to help the elderly make their homes warmer.
So, in summary the Trust believes that the pre-budget
report could and should have gone further to signal incentives
and disincentives (inefficiency charges) for consumers for saving
energy. However, on a more positive note we were encouraged by
the government's commitment to further consider fiscal measures
for energy efficiency and to include new policies in next April's
Budget.
TRANSPORT
The Trust was much more encouraged by the pre-budget
report's proposals on the taxation treatment of alternative fuels,
and was broadly supportive of the measures it outlined. In particular,
the establishment of an Alternative Fuels Framework is to be supported,
as it will help ensure government policy reflects the environmental
benefits of alternative fuels and also establish a clear rationale
for decisions on duty rates.
The Trust also supports the three-year timescales
announced for decisions, and specifically welcomes the three year
freeze on CNG duty. In the case of LPG, we support the decision
that duty should reflect environmental benefits. However our concern
is that raising the duty level may make bi-fuel LPG vehicles uneconomic
to run compared with diesel and petrol vehicles, and as such disincentivise
the production of mono-fuel LPG vehicles which bring greater environmental
benefits. The Trust believes that a 10-year framework would give
industry clearer signals about future directions and improve their
ability to put together a business case for developing the alternative
fuel market.
The Trust eagerly awaits the final announcement
in March on levels of duty for LPG. We intend to work with the
Government to ensure that the new rates reflect the environmental
benefits that LPG could deliver in the long-term and to support
its role alongside conventional fuels.
January 2004
6 These Carbon and financial savings would result
from consumers shifting from purchasing C-G rated appliances to
A rated appliances. Back
7
Standard tungsten GLS bulbs retail at between 20p and 60p per
bulb, while the average high street price for a CFL is approximately
£5. Back
8
Carbon savings resulting from 50p inefficiency charge and reduction
in VAT to 5%. Back
9
The Energy White Paper announced that A&B rated condensing
boilers will become the standard installation in April 2005 in
England and Wales. Back
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