Virgin Media O2 Calls on UK Gov to Cut VAT on Broadband Social Tariffs

The CEO of ISP and mobile giant Virgin Media and O2 (VMO2), Lutz Schüler, has today joined growing calls for the UK government to provide more direct support during the cost-of-living crisis by cutting the rate of Value Added Tax (VAT) on cheaper social tariffs for home broadband and mobile services from 20% to 5%.

At present, consumers who are eligible (i.e. those on benefits like Universal Credit) for cheaper ‘Social Tariffs‘ still have to pay 20% VAT, although such plans could naturally be made cheaper by dropping this to 5% and thus bringing it more into line with existing utility services like gas and electricity.

The calls for such a change are not new, with both the UK Internet Service Providers Association (ISPA) and consumer magazine Which? highlighting a similar message earlier this month (here). But so far, the government has yet to give a clear response, which may be partly because their key decision makers seem to have been distracted by the current leadership contest.

Lutz Schüler said:

“Until now, it’s not always been easy for us to check if a customer is in receipt of Universal Credit, with the process being mostly manual and heavy on administration. That changed last week when Government announced a new system which allows broadband providers to confirm customers’ eligibility quickly and easily. This was very welcome news and something we’ve long called for.

We’re committed to using this API as soon as possible, with work already underway to implement it, and we will also expand our eligibility criteria to include a wider range of benefits so even more people can access our social tariff. On top of this, to ensure customers know about the support on offer, we’ll soon start including information about Essential Broadband in the communications we send to customers every year related to their contract.

While these steps will help to improve the availability, awareness and affordability of essential connectivity, we can still go further. By cutting VAT on social tariffs to 5%, as Which? has been calling for, Government could put more money back into the pockets of those struggling most in a targeted way. We would pass on any social tariff VAT cut in full and urge the next PM to review this as a priority.

However, support can’t just be focused on social tariffs, and we’re committed to playing our part in helping all of our customers and the communities we serve. Right now, this matters more than ever.”

Admittedly, cutting VAT to 5% on social tariffs wouldn’t solve some of the biggest problems with these packages, such as around the general lack of consumer awareness that they even exist. But on that front, it’s good to see that VMO2 will now be promoting their own tariff in the communications they send to customers every year related to their contract.

However, the Government has so far been reluctant to provide any direct support (e.g. tax cuts or subsidy) to consumer telecoms services, and has instead preferred to pressure the industry into making various – and arguably somewhat feeble – voluntary commitments (here). On the other hand, there have recently been hints that the government may introduce a wide-scale VAT reduction, albeit not to the depths of 5%.

One of the problems with a wide-scale VAT reduction, aside from the huge and annoying admin it creates, is that not all providers and products will pass the change on to consumers. Lest we also forget that CPI inflation is currently running at 10.1%.