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Organisations such as the UKGBC say latest commitments to slash VAT on heat pumps and insulation are a small but welcome step that must be backed by more ambitious policies for existing buildings

The UK is still drastically in need of a largescale retrofit programme to ensure lower carbon and more energy efficient heat in homes, the UK Green Building Council (UKGBC) warns.

The comments were made in response to Chancellor Rishi Sunak’s Spring Statement that was delivered this week with several commitments that are expected to impact the HVAC sector and its efforts to decarbonise buildings.

Among these pledges was a commitment to eliminate the existing five per cent VAT rate on energy efficiency solutions for buildings. This would cut the cost of insulation materials and heat pumps.

The UKGBC said it had been part of a coalition of trade bodies and associations that had been calling for such a VAT cut ahead of the latest Spring Statement and therefore welcomed the Chancellor’s announcement.

However, it said that the cut was the first step in reversing the dwindling number of energy efficiency improvements that it claimed were being made to homes over the last nine years.

A welcome ‘small step’

Julie Hirigoyen, chief executive of the UKGBC, said the VAT cut was a “small step” that was still a useful signal to the building engineering sector and householders about efficiency improvements.

Ms Hirigoyen said that an ongoing lack of “serious” funding, incentives and national strategies for energy efficiency was a major barrier to decarbonise domestic heating nationally.  Fresh policy reforms were therefore urged by the UKGBC.

She said, “This should start with fulfilling the 2019 election promise to spend £9.2bn on existing successful schemes for low income and social housing. We need to see an expansion of the small-scale Boiler Upgrade Scheme, a successor to the Green Homes Grant Scheme and long-term financial drivers such as a green stamp duty.”

The issue of fuel poverty and ensuring UK homes have access to affordable heat has become a pressing industry and political with energy bills expected to rise by hundreds of pounds a year from April.

Ms Hirigoyen said that there was arguably little immediate support provided by the Treasury in the Spring Statement with regards to supporting an estimated six million households expected to struggle to cover their heating costs.

She added, “Helping households to cut energy waste and switch to clean energy is the best way to lower their energy bills for good. UKGBC’s Net Zero Whole Life Carbon Roadmap demonstrates that a national programme of home retrofit could save on average £430 per home on their energy bills, releasing vital disposable income to vulnerable households.”

The UKGBC said that further increases in energy bills expected by the autumn would need an urgent rethink in to ensure a huge number of existing homes can be made more energy efficient in the long-term.

Ms Hirigoyen said, “The prime minister still has an opportunity to put this at the heart of his forthcoming British Energy Security Strategy. Government investment in domestic energy efficiency can quickly become self-financing, it’s the common-sense response.”

Environmental Audit Committee responds to statement

A statement from parliament’s Environmental Audit Committee also welcomed the removal of VAT on energy efficiency measures.

MP Philip Dunne, Chair of the committee, said it had been among voices from across the building engineering sector asking for such a cut on VAT for a long time in roder to incentivise home improvement work.

He said, “In evidence to our committee, we heard how VAT is the largest obstacle to homeowners making low carbon improvements. Improved installation and retrofitting have the potential to reduce bills while slashing some of the 20 per cent of emissions emanating from UK homes.”

“Heat pumps and solar panels will then help to power our homes in an effective, low carbon way. This is a major vote of confidence in net zero, and I welcome the chancellor’s announcement today.”

The committee Chair noted that Chancellor Rishi Sunak has claimed the VAT policy would cut taxes charged on energy efficiency improvements in homes and other buildings by up to £250 million.  These savings would amount to around £1,000 off the cost of installing solar panels that could in turn see a £300 reduction in annual energy bills.

Policy experts and manufacturers have responded to the VAT cuts as a welcome means of improving the consumer appeal of heat pumps, solar panel systems and other energy efficiency measures.

Worcester Bosch chief executive Carl Arntzen said that the savings resulting from the VAT relief could counteract the financial barriers that have prevented more people from adopting heat pumps and energy efficiency improvements in their homes.

Mr Arntzen said that it would be vital to have clarity on how exactly the VAT cuts would apply with regard to the supply and installation of more energy efficient solutions.

He said, “As the more specific details start to appear following the Spring Statement, it will be interesting to see whether the five per cent tax relief is for the products and materials, or, as we would hope, applies to the total cost of installation, as around 60 per cent of the cost of a heat pump installation is on ancillaries and labour.”

Official documentation provided along with the Spring Statement said the government would extend VAT relief to “the installation of energy saving materials”.

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