Which? and ISPA UK Call on Gov to Cut VAT from Broadband Bills

The UK Internet Service Providers Association (ISPA) and consumer magazine Which? have today called on the Government to help tackle the cost-of-living crisis by enabling ISPs to cut Value Added Tax (VAT) on broadband and mobile bills from 20% to 5%, which is naturally a move that will attract wide support.

The proposal comes after Which? analysed data from Ofcom and the Office for National Statistics (ONS) to estimate that 5,746,529 households experienced at least one affordability issue when trying to pay for their communication services in the last month (e.g. reduced spending on other essentials, cancelling or changing their service or missing payments).

The study noted that the number of households that have had any affordability issues in the past month increased from 16% in February 2022 to 20% in April 2022. The number of households that experienced multiple affordability issues related to broadband, phone and mobile services also increased by 56% from February to April 2022 (e.g. struggling to afford more than one telecoms service etc.).

One way to reduce this burden would be to slash the rate of VAT on related bills from 20% to 5%, which would put such services in line with other essentials like gas and electricity. Which? estimates that reducing the VAT rate on telecoms by this much would cut costs by an average of £120 per year.

However, it’s worth remembering that the price we all pay for communication services is largely dwarfed by the colossal hikes in energy (e.g. gas and electricity), petrol and other bills. If people are struggling to afford even a fairly basic internet or mobile package, then they’ve probably got much more serious concerns when it comes to other areas, such as heating their homes in winter, getting to work or buying food to live.

Broadband and mobile are also extremely important services that can help you to save money and solve other problems (shopping, insurance, finding jobs etc.), thus it could easily be argued that such services more than pay for themselves in respect to the value they return. But this also helps to explain why people will often prioritise them, while at the same time perhaps lending support to the value of a VAT cut on such bills.

Steve Leighton, ISPA Chair, said:

“Last month the industry came together with Government to agree joint commitments on supporting customers who may be struggling with their finances. However, there is more Government can do to help industry and we support the call from Which? for a reduction in VAT on telecoms bills.

A VAT reduction would enable industry to go much further in the support they can offer their customer’s during this crisis. Broadband bills make up a small percentage of household spent, and the broadband sector has responded to the cost-of-living crisis swiftly. There has been a clear increase in the availability of social tariffs all across the UK and our members are actively engaging with their customers.”

At this point it’s worth noting that even those consumers who are eligible (i.e. on benefits like Universal Credit) for cheaper ‘Social Tariffs‘ still have to pay 20% VAT, so even if the Government didn’t want to apply a universal reduction to telecoms services then they could still target one toward that group.

On the flip side, low awareness and thus take-up of such social tariffs is still a major issue, although we imagine that the government might privately consider that to be a positive if they did cut VAT (i.e. winning votes while not actually losing much tax revenue). The caveat, in the aforementioned context, is that doing this would be big news and that would generate publicity and thus more take-up of such tariffs.

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 voluntary commitments (here). But there’s some debate about what difference, if any, those have made.

In the meantime, consumers who are out-of-contract should be considering their options for switching broadband ISP or mobile operator, while others could try to renegotiate for a better deal (Retention Tips). But your mileage may vary on the latter.