Chancellor reduces VAT on energy-saving items, but not on energy

In his Spring Statement yesterday (March 23), Chancellor Rishi Sunak scrapped VAT on  energy-efficiency products such as solar panels, heat pumps or insulation, in a move described by Builders Merchants Federation CEO John Newcomb as a ‘ray of hope’

Newcomb said: “The Chancellor offered two rays of hope in his Spring Statement, with a temporary reduction in fuel duty and the removal of VAT on energy saving materials for the next 5 years.  We have long supported zero-rated VAT on these materials, both to promote energy efficient upgrades to our existing housing stock and support the drive to net zero, and welcome the Chancellor’s announcement.

“However, the potential impact of these positive measures must be considered within the broader context of building materials supply, where the outlook is much less certain.

“Even before the war in Ukraine, rising energy, freight and labour costs were reflected in price increases for many essential building products, with many manufacturers already announcing increases of 4-10% this year and energy intensive products increasing by as much as 20%.

“With continuing disruptions to global supply chains, particularly in oil and gas, the Office for Budget Responsibility (OBR) already expects inflation to rise to 7.4% this year, with further increases to come.   I am sure a lot of building materials manufacturers, and their customers, would have been looking for more support.”

Kevin Wellman, CEO of the Chartered Institute of Plumbing & Heating Engineering (CIPHE) added: “While we battle the cost of living rises, installers and the public alike will welcome the fall in fuel duty, and the rise in earning threshold for National Insurance. It is also encouraging to see the government support the most vulnerable households through increased funding for the Household Support Fund.

“There is good news for consumers looking to improve the energy efficiency of their homes and invest in green technology. The 0% VAT rate will help cut costs and increase demand. However, we must ensure systems are designed and installed correctly to offer the required energy savings. Savvy installers will be signing up to renewable training, such as the CIPHE’s Low Temperature Heating and Hot Water Systems in Dwellings qualification, to ensure they have the knowledge and skill to install such systems.

“As was seen via the green homes grant scheme’s failure, the UK does not currently have enough trained installers of the green technologies supported by the VAT cut. I would have welcomed an immediate strategy to address this, but a review of employee training and the Apprenticeship Levy is long overdue. As we have documented in our manifesto, there is a dire need to kickstart apprenticeship starts in the plumbing and heating sector. Tax breaks for R&D will only help manufacturers become more innovative at a critical time for our industry, and we would urge the Government to be generous. Finally, in an industry that includes so many small businesses, it is good to see them get a boost of around £1,000 through the rise in the employment allowance.”

However, Mike Foster, CEO of the Energy and Utilities Alliance (EUA), said: “The Chancellor has clearly not heard the outcry over rocketing energy bills faced by millions. He has done nothing in the Spring Statement to help the vast majority of consumers who face bills doubling this year.”

“His VAT cut on solar panels and heat pumps will be welcomed by those who make them and by those who can afford to fit them, but a VAT cut on energy bills would have helped everyone.”

“Frankly, consumers waiting to hear good news on their energy bills will be left asking, ‘is that it Chancellor?’”