It is time to bring VAT relief for energy-saving materials up to date with technology
By David Lennan, Chairman, National Warm Homes Council
The government recently announced in the Autumn Statement that the list of energy-saving materials (ESMs) that benefit from VAT relief is to be reviewed and expanded following a call for input in March 2023. The government has indicated it will soon set out the full details before a UK-wide implementation from February 2024. But how can an outdated policy framework be reshaped to help deliver net zero, warmer homes and cheaper energy bills?
Plans to update VAT relief for ESMs is an important development that could support the rollout of more energy efficiency measures – helping families to make critical upgrades to their homes to reduce carbon footprints and save on heating costs.
The original list of products exempt from VAT was outlined in the VAT Act of 1994 and included solar panels, water turbines and wall insulation. The list was specific rather than just referring to measures that save energy. These rules are now nearly 30 years old and have not kept pace with the most recent innovations in energy efficiency, with no new technologies added to the list since 2005.
Expanding the list for a new era could significantly boost the growth of UK-made, innovative energy-efficiency technologies to better enable homeowners to align with government goals to decarbonise homes and heat them more affordably.
Loft insulation protection is one such technology that shares the overriding objective of the relief, which is primarily about improving energy efficiency, but it is not included in the current VAT exemption list of ESMs.
Loft insulation protection products ensure that insulation remains effective throughout its lifetime and does not suffer damage due to compression. This is a much-needed energy-saving solution, particularly as research from the Carbon Trust and the National Physical Laboratory shows that 80 per cent of households squash their insulation with boxes and boards, thereby at least halving its effectiveness.
Insulation protection has a secondary benefit, too. It incentivises consumers to insulate their lofts, which is one of the most impactful measures people can take to heat their homes. Insulation protection helps consumers enjoy their insulation by enabling them to continue using their lofts for both access and storage.
Despite the advantages, of the 25 million lofts in the UK, only approximately 250,000 have loft insulation protection, meaning most loft insulation is currently being degraded. Unprotected loft insulation undermines the government’s energy efficiency and net zero ambitions and leads to unnecessary costs for families.
Without a range of government-led incentives, the level of uptake of insulation needed to achieve net zero will be compromised given consumers are incredibly price-sensitive when it comes to energy efficiency measures.
However, rather than incentivise, the current policy forces householders to pay 20 per cent more for innovative energy-saving equipment. For example, the average order value for insulation protection in a UK loft is £1,200 plus VAT. A 20 per cent reduction would therefore make a material difference in helping consumers with the upfront costs of making home energy-saving improvements. Even a 10-15 per cent reduction in price can result in more than a 50 per cent increase in the uptake of measures.
Beyond the energy-efficiency arguments, there is also a strong economic case to expand the list to include insulation protection as it will support British businesses – large and small. The loft insulation protection market is burgeoning. It comprises of independent and high-street retailers, including B&Q, Wickes and Homebase.
Hundreds of British people owe their livelihoods to loft insulation protection. There are 25 million lofts in the UK, but only 1 per cent of all UK lofts have their insulation protected, so there is considerable scope for this sector to grow. Supporting more households to protect their lofts will result in more materials being manufactured, more supply chain orders, more fitters being trained and more jobs, with all regions prospering.
That is why this review is a crucial opportunity for the VAT rules to catch up with the latest technological and practical developments in energy efficiency. It is something the energy-efficiency sector has long been asking and waiting for.
Rationalising and extending the list of ESMs to newer technologies including loft insulation protection will support the greater uptake of energy efficiency measures and reduce the cost impact on individual households arising from the transition to net zero. This outcome would be a win-win for all concerned.
The government now has a real chance to move the dial on energy efficiency while reaping the benefits of energy security, economic growth and new green jobs across the country. Our message from members to the government is clear: it is time to bring VAT relief for energy-saving materials up to date with technology.
