Reducing VAT for all retrofit improvements would boost green growth
David Lennan, Chairman, National Warm Homes Council
The next Budget on 30 October marks a real opportunity to give a boost to green growth that could help address the heat-leaking homes blighting the lives of millions of low-income households and families across Britain. But how can the Chancellor use the forthcoming budget to support homeowners to lower their emissions and bills while creating more jobs and bolstering the UK economy?
With the energy price cap rising by 10% from next month, there is an increasing need to support families with home decarbonisation and offering more affordable heating options.
However, the costs of retrofitting are becoming unaffordable for too many. The Federation of Master Builders claims that VAT costs put off about four million households annually from making any energy-efficiency changes to their homes.
Currently, VAT relief for energy-saving materials is limited to a very prescriptive list of low-carbon technologies, barely updated since 2005, which ignores many more recent innovations.
VAT relief or exemptions vary depending on the product and the associated installation process – many increasingly popular and easy-to-install technologies are currently excluded despite their primary purpose being to save energy consumption.
The relief is also only applicable if a contractor is used, excluding a homeowner from benefitting if they choose to upgrade the energy efficiency of their home through DIY. This provides the Chancellor with the opportunity to update, expand and simplify this relief to capture the full range of materials and technologies available to help homeowners reduce their energy consumption.
One such technology that should be exempt from VAT is loft insulation protection, which if installed, could make a huge impact for homeowners. This is an increasingly popular solution for families and policymakers in search of easier, scalable and affordable ways to permanently cut bills and improve home energy efficiency.
By installing and protecting loft insulation so that it lasts a lifetime, families will benefit from warmer homes and lower bills and emissions without needing to pay additional costs to insulate again.
Though consumers support energy efficiency measures in principle, they are price sensitive too. This is not only the case for expensive technologies like heat pumps but also for more affordable ones such as loft insulation protection.
Without a range of incentives, we will not scale the uptake of energy-saving materials and technologies required to the extent needed to achieve net zero. Our members report that even a 10-15% price reduction can result in a 60-70% increase in the uptake of measures.
To help families with the cost of transitioning to low-carbon heating, extending and clarifying the rules for VAT relief to include a broader range of innovative energy-saving equipment, such as always including loft insulation protection, would do much to incentivise people to retrofit their homes.
By doing so, we can bring about the delivery of Labour’s Warm Homes Plan but also deliver numerous other benefits. For consumers, more affordable and accessible energy-saving materials such as loft insulation protection could enable immediate reductions in energy consumption, leading to lower bills. Once installed, more homes with these technologies will see an immediate impact on their energy consumption, driving down the cost of bills. The affordability of these products provides more attractive prospects for households, particularly those on lower incomes, who have concerns about the costs of larger technologies such as heat pumps.
For the wider industry, the uptake of these energy-saving materials in homes would drive growth in the UK energy efficiency supply chain, supporting British SMEs and creating green jobs. There is also export potential of selling into other markets, as we are seeing already with British loft insulation protection becoming popular in the US.
For the UK government, the greater use of these products and a growing industry would lead to an increasing number of corporation tax receipts, offsetting the small impact of VAT relief. The reduction in energy bills for households could also benefit the economy, with consumers having greater levels of disposable income.
Given that the government wants to cut energy bills for families while keeping to tight fiscal rules, it may be more prudent for it to help families and low-income households adopt loft insulation protection as one of the easiest, least risky and most affordable ways to drive energy efficiency and future-proof their homes.
The next Budget really is the time to recognise the importance of technologies like loft insulation protection and ensure they are accessible to all. By expanding VAT relief, the Chancellor can encourage widespread adoption of these energy-saving solutions, boost green growth and create a more sustainable future for the UK.
