Are long-life products too expensive, or do we just want new ones?
I like the suggestion from the House of Lords Science and Technology Committee (Waste Reduction – pdf) that the government should cut VAT on products with long life-cycles and on repair services.
But why is it necessary at all? Given that sturdy products are generally cheaper in the long run, why don’t people just buy them?
- People’s discount rate is sufficiently high (or their access to capital is sufficiently low) that they don’t want to pay higher upfront costs despite long term savings.
- In many sectors goods depreciate quickly because they go out of fashion or new, more attractive versions come onto the market.
The tax cut addresses the first reason. The Committee’s chair, Lord O’Neill says:
Currently a lot of people can not justify spending a huge amount on a product just because it lasts longer but if this recommendation is followed through, it should encourage modern electronics manufacturers to produce more sturdy products.
I wonder about the extent to which a tax cut would address the second reason. If it makes longer-life products affordable for more people, many of those people will not believe they save money if the products are not worth anything after a few years. Someone who wants a bigger TV or a faster laptop is unlikely to value several extra years of life in the old one.
Obviously, taxing or otherwise pricing the pollutants we ultimately care about would produce a similar impact to differential VAT with lower risk of unintended environmental consequences or errors in categorising products as ‘sustainable’.
As an aside, there are lots of other (non-tax) things in the report too.