Just can’t get enough? (BEHAVE 2014 Blog Series, 4/4)

Ten years ago, Brook Lyndhurst commissioned MORI to survey a representative sample of 1,000 adults.  One of the things we asked back then was:

“To what extent do you think it would fair or unfair for the government to charge a lower rate of VAT on energy efficient products and a higher rate of VAT on normal products?”

Basic economics suggests that, if the price of a product comes down relative to an alternative, demand for that product will rise. That is, if we wanted to increase consumer demand for environmentally friendly products, we should simply make them cheaper compared to the alternatives.

One relatively easy way for policy-makers to do this might be through VAT, we reasoned.  There would be a cost to government, of course, through the cut in VAT for environmentally friendly products – but this would be offset by an increase in income from the rise in VAT on other products.  This environmentally progressive move could thus be ‘fiscally neutral’ – the net effect on the taxpayer would be zero.

But how would consumers react?  We’re led to believe they’re suspicious of government and hostile to tax.  Here’s what they said:

2004: “To what extent do you think it would fair or unfair for the government to charge a lower rate of VAT on energy efficient lightbulbs and a higher rate of VAT on normal lightbulbs?”

GN4

Strikingly, more than a third of our respondents thought that it would be ‘very fair’ to change VAT in this way; and nearly three quarters, in total, thought the idea was a fair one.  Back in 2004, looking at this result in ‘Bad Habits, Hard Choices’, we felt that this strongly indicated that consumers were giving government ‘permission’ to act on the environment.

But what about now?

Well, we weren’t able to ask exactly the same question in our most recent survey, not least because some energy efficient lightbulbs have been banned.  (Government – or, at least, European government – seems to prefer ‘choice editing’ to ‘price signals’.) But we were able to ask a very similar question of a representative sample of 1,000 British adults, and we got this:

2013: “To what extent do you think it would fair or unfair for the government to charge a lower rate of VAT on energy efficient products and a higher rate of VAT on normal products?”

GN5

And here we can put our pessimistic hats on and say (whilst putting to one side the change in question wording and methodology) something like: there has been a marked fall in the proportion of people thinking that it would be very fair to shift VAT rates in favour of environmentally friendly products.

With our optimistic hats on, however, we could say that, despite the cumulative effects of prolonged recession and/or low growth, and despite environmental issues having a conspicuously low profile in recent years, 70% of the respondents think that it would be fair to increase the cost of normal products whilst reducing the cost of environmentally friendly products.

Most governments would be absolutely delighted to have that sort of approval rating for a policy. What’s not to like?

One Comment

  1. Posted September 3, 2014 at 9:20 am | Permalink

    Well there’s two issues here from a govt perspective. The first is whether VAT changes on energy efficient bulbs woukd have any visible effect on the purchasing patterns. Ultimately cheaper bulbs are cheaper bulbs whether they are 50% or 30% cheaper. Plus people tend to buy what they know so even if they were the same price it might not work. Second VAT changes are not cost free, either for businesses or for govt. The choice is either to raise tax on one or drop tax on the other. The former risks losing political capital the latter losing income to the treasury – especially difficult if you are aiming to cut a deficit. Ultimately the risk to political capital and the minor if any impact makes this not a tempting policy proposition, regardless of polling data. More important policy would be massive investment in electric cars and related incfrastructure. Just my 2p

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  1. [...] results show that, by and large, the general public do indeed think this sort of thing would be fair.  [...]

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