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COVID-19: VAT should be cut to help boost green recovery from pandemic, MPs say

Written by on 17 February 2021

VAT should be reduced on home energy efficiency projects and products using recycled materials to help boost a green recovery from the pandemic, MPs have said.

The parliamentary Environmental Audit Committee (EAC) has also called for tax incentives to make electric vehicles more affordable as part of efforts to “grow back better” after the outbreak.

Committee chairman Philip Dunne, a Conservative MP, said the UK needs a tax system that is fit to help deliver its goal of cutting greenhouse gases to net zero by 2050.

He made the remarks as he urged Chancellor Rishi Sunak to use the Budget in March to make changes to drive a greener future.

The EAC report said COVID-19 must be treated as a “wake-up call” to the ecological damage humans were causing.

It warned that if the economic recovery from the pandemic is not used to improve the environment, climate change and the collapse in nature may deliver an even greater crisis.

The government should frontload investment in energy efficiency, cleaner transport, helping nature recover and systems which reuse materials and products instead of wasting them, to provide green jobs, the MPs said.

A “national nature service” should be piloted with charities this summer to open up opportunities in conservation, the report said.

The Green Homes Grant, launched last year to cut emissions, energy and costs from homes but which has been beset with problems, should be overhauled and extended to deliver the promised upgrades to 600,000 homes.

The report said tax changes could offer a “reset” that helps the UK reach its net zero target, which requires huge cuts to emissions and remaining pollution offset by measures such as planting trees.

This should include reductions in VAT on repair services and products containing reused or recycled materials to encourage more recycling and less waste.

VAT cuts or other tax incentives could be applied to areas such as polyester clothing with a high proportion of recycled “PET” plastic, recycled paper board packaging, refurbished IT equipment or products being leased rather than sold.

The 20% VAT rate for building renovation projects – charged while new builds avoid the tax – should also be reduced on green home upgrades to encourage people to install energy efficiency measures such as insulation and low carbon heating systems.

Further tax incentives are needed to boost take up in electric vehicles, which cost more than conventional cars, and air passenger duty should be reformed to encourage investment in low-emission technology.

The committee also called for the government to look into an economy-wide carbon tax to encourage the shift away from pollution nationwide and “carbon border adjustments” which would tax imports for their carbon footprint.

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The report, published amid controversy over decisions and plans for a new coal mine, airport expansion and new road building, also called for all decisions about infrastructure to be considered with regard to the UK’s net zero target.

The road building programme should be “rigorously assessed” against the UK’s air quality, climate change and nature protection targets before individual projects proceed, the MPs urged.

Mr Dunne said: “The COVID-19 crisis must be treated as a wake-up call. It is a symptom of a growing ecological emergency.

“The economic recovery will shape our national economy for decades to come and it is crucial that tackling climate change and restoring nature is at its core.

“A tax system fit for net-zero Britain is key. It will encourage innovation, give confidence to the sector and support companies to make the low-carbon transition.

“There are endless initiatives that can lead to a greener future and the Chancellor should use his upcoming Budget statement to start this process.”