Calls to cut VAT as European energy prices spike

A number of voices, including those of lawmakers and consumer groups, are calling for VAT reductions as European energy costs surge. 

In the UK, some Conservative MPs urged government to cut VAT on energy bills. While French consumer group UFC-Que Choisir also wants to see a temporary VAT reduction. "There could at least be a temporary reduction in VAT to compensate people for this considerable increase,” the group’s president said. 

Does Europe need to work together?

EU leaders are meeting next month to discuss surging energy prices. Governments are looking for creative ways to mitigate the effects of the increase, including VAT policy. 

While some countries have measures to assist their citizens, Spain has called for a coordinated EU-wide effort to address the issue. 

Lower VAT to counteract rising costs

Greece’s Prime Minister Kyriakos Mitsotakis recently announced that the reduced VAT rate on tourism would be extended. The education aims to boost the sector, specifically. However, Mitsotakis said lower VAT rates would also help counterbalance rising energy costs.

The Spanish government has cut the VAT rate on energy bills and is also looking at specific measures to address the energy sector’s rising prices. 

In Italy, over €3 billion have been earmarked to offset rising energy prices. The measures include VAT cuts on energy bills. Italian prime minister Mario Draghi had cautioned that huge energy prices threaten to undermine the country’s economic recovery. 

Using carbon taxes to help consumers?

European Central Bank President Christine Lagarde suggested that the revenue generated by carbon taxes should be used to help people suffering from higher fuel costs. Lagarde said that, if not managed effectively, carbon taxes could negatively affect purchasing power. 

Lawmakers are still exploring the potential uses of VAT as an environmental policy tool. 

Lagarde has acknowledged that Eurozone inflation could exceed the ECB’s projection but has not as yet revised her forecast. “Our baseline scenario continues to foresee inflation remaining below our target over the medium term,” Lagarde said.