Cutting VAT on broadband could be used as a levy to improve access to social tariffs and to offer subsidised technology and digital skills training.
Intervention should also be made to remove the credit check requirement on social tariffs that limit the number of customers able to sign up.
Recent research from Ofcom suggested that 4.2 million households could be eligible for an affordable broadband tariff yet only 55,000 have signed up.
VAT on broadband
The VAT rate on broadband is 20% yet it is such an essential home service that the Government has ruled every home has the right to a decent broadband connection of at least 10Mb.
We contend that lowering the rate of VAT on broadband to the reduced rate of 5% and transferring the savings into a separate social fund would ensure affordable tariffs and other digital inclusion projects could be offered to all eligible households.
This would eliminate the possibility that broadband providers would simply absorb the VAT cut into their profits and allow crucial support to be targeted towards lower-income households in a way that is more financially sustainable.
Now the UK is no longer part of the European Union, the Government can choose to lower the VAT rate on broadband and channel that money into helping more customers access this essential service.
Money raised by cutting the VAT rate on broadband to 5% could go into a separate fund with various objectives such as:
- Giving broadband providers funding for offering social broadband tariffs to their customers
- Funding access to digital skills workshops and training
- Subsidising the costs of technology for the lowest-income households
This would allow for affordability and confidence issues to be addressed while ensuring that broadband providers and service providers are not bearing the brunt of funding themselves.
Ofcom's February 2022 research into the affordability of broadband services found:
- 5% of all households report issues with broadband affordability, amounting to around 1.1 million households
- 11% of lower-income households (with income under £10,399) have experienced affordability issues
- 5% of households only access the internet through their mobile phone or a mobile broadband device, with 7% of this group experiencing affordability issues
Ofcom conclude that the financially vulnerable are more likely to experience issues with telecoms affordability and that this underlined the importance of social tariffs.
There are a handful of social tariffs available in the UK today, with BT Home Essentials the most widely available.
Yet Ofcom research shows that, despite an estimated 4.2 million households being eligible for a social broadband tariff, only 55,000 households have signed up.
Part of this is undoubtedly due to lack of awareness and BT have already promised to make changes to signpost vulnerable customers towards the Home Essentials tariff in stores where appropriate.
Ofcom themselves are also looking to strengthen the protections offered to vulnerable customers by telecoms providers, including by prompting them to mention social tariffs to customers in need of help and support.
However, there are a few problems with social tariffs that should be addressed to improve accessibility and awareness.
First, the funding model we have discussed above would ensure that more broadband providers could offer a funded social tariff, allowing customers to choose from several rather than just one or two.
The ability to make decisions about their own provider is an important option and puts power back into the hands of the customer rather than the few providers who currently offer such tariffs.
In this scenario, more providers would be able to share the administrative burden of offering and handling social tariffs and, as these packages were pre-funded, there would be no incentive to obscure their existence or make them difficult to access.
Second, we argue that the barrier of credit checks should be removed from all social broadband tariffs.
The current BT Home Essentials plan requires a credit check where its predecessor BT Basic did not. BT say this can result in a security deposit being requested in case a customer do not pay their bills.
Given the target market of social tariffs, this is wholly unacceptable and disenfranchises the very people these tariffs are meant to support.
Many customers will be put off by the mention of a security deposit without even going through the application process, while many more will be unable to afford any upfront costs - hence why they are applying for the tariff in the first place.
If equipment costs are the main consideration for running credit checks in this way, providers could supply their customers with basic or older routers that are not as valuable as the latest models. In addition, consumer debt could be handled via the usual channels afterwards where necessary or subsidised by the social fund if appropriate.
The goal should be to encourage the uptake of social tariffs. Ofcom is sufficiently concerned about vulnerable customers to look at strengthening the protections offered to them.
We ask that they go further by altering the rules on credit checks on social tariffs.
This simple change, and the VAT cut we have proposed on broadband, would go some way to making social tariffs more accessible to those they are meant to support.