Industry ramps up pressure on government for energy efficiency incentives

A coalition of HVAC, construction and insulation trade bodies has urged Chancellor Rishi Sunak to eliminate applying VAT to a range of retrofit services intended to improve building energy efficiency.

A joint letter written to the chancellor has urged him to consider scrapping an existing 20 per cent VAT rate on retrofit works in existing buildings to help alleviate heat demand and reduce resulting energy costs and carbon emission.

The calls reflect wider efforts from across the building engineering sector to pressure the government to ramp up incentives to drastically improve the efficiency of UK homes to support lower carbon heating systems and curb overall demand on fossil fuels.

The latest calls have been backed by groups including the Association for Decentralised Energy (ADE), the National Insulation Authority (NIA) and representatives of the Ground Source Heat Pump Association. Signatories of the letter argue that removing VAT on more extensive retrofit work would bring government support in line with tax incentives currently supported for new building projects.

The joint letter stated, “As newbuild projects have zero rated VAT applied to energy efficiency measures, it incentivises replacement of existing buildings rather than retrofitting existing structures, despite retrofitting resulting in far lower overall carbon emissions than replacement.”

Signatories of the joint letter, which represent heat networks specialists and heat pump providers, have argued that domestic energy efficiency is an increasingly critical issue for the public. These concerns are expected to intensify with the price of gas set to drastically increase from April onwards.  A scheduled rise in the energy price cap owing to the increasing costs of gas will see energy bills rise on average by over £600 per year for some 22 million UK homes.

Future proofing argument

The joint letter argued that while energy efficiency improvements were not an outright solution for tackling increased energy costs, they would serve to help future proof UK homes to be less reliant on fossil fuels.

The removal of charging VAT on energy efficiency measures for retrofit projects would therefore serve as an important stimulus for reducing carbon emissions from buildings before the fourth carbon budget, according to the signatories.

They stated, “It would improve the energy efficiency of the UK’s housing stock, reducing fuel costs to consumers and consequently reduce the impact on the fuel poor.”

“Removing the VAT would also support those to retrofit their homes who currently cannot afford to do so and act as a fast turnaround, no regrets fiscal stimulus. It would also increase demand for retrofitting and thereby support the UK’s green retail finance sector by increasing lender’s confidence in consumer demand for energy efficiency.”

The letter has been published as major fuel poverty campaigners are also calling on the government to scale up incentives and other support for domestic energy efficiency improvements as the country braces for higher heating costs this year.