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Chancellor announces zero rating on all Energy Saving Materials

At Sweco, we’re proud to have signed up to a letter that was sent to Rishi Sunak from the Association of Decentralised Energy, which in turn sent a strong message to the government on green VAT. Together with ADE and our fellow signatories, we are pleased with the outcome.

In yesterday’s Spring Statement, the Chancellor announced zero rating for all ESM (Energy Saving Materials) for a period of five years (as of this coming April). This includes insultation, smart heating controls, domestic renewables and heat pumps.

 

Extract regarding green VAT in the Chancellor’s Spring Statement:

 

2.14 To help households improve energy efficiency and keep energy costs down – as well as supporting the UK’s long-term Net Zero ambitions – the government is extending the VAT relief available for the installation of energy saving materials (ESMs)…the government will also increase the relief further by introducing a time-limited zero rate for the installation of ESMs.

Campaign background

Along with wider industry and prominent peers, we have asked the Chancellor to ‘zero rate’ the VAT on insultation products for energy efficiency, bringing them down from the current 20% that currently applies (with some exemptions). This should dramatically reduce the cost of energy efficiency for retrofitting homes, at very small cost to Treasury. This would in turn make alternative forms of low carbon heating more attractive, and homes would have higher thermal storage for flexible and smart electricity markets. We are asking for individual member signups rather than the ADE alone to demonstrate the wider support across our members.

Given the current energy crisis, all options are currently on the table for solutions. While we do not consider this a short-term fix for the current crisis, Green VAT is one of a number of ways to make a more sustainable long term market for home energy efficiency retrofit.

We’re extremely proud to be have been a part of ADE’s campaign so far, and to see that our collective efforts are cutting through at the highest level. Below is the text from the letter Sweco and other key industry organisations signed in the effort to cut green VAT.

Dear Chancellor,

The ADE are a trade association and leading advocate for decentralised energy and building retrofit, with a membership base of more than 130 organisations.

The undersigned organisations are calling for a reduction in the VAT applied to energy efficiency measures from the current rate of 20% to 0%, similar to that of new build projects. 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. Regardless of what policies and other incentives exist for the retrofit market, with 20% VAT on all retrofit works to existing homes, there is a strong disincentive to carry out deep retrofit works. This is a particularly critical issue considering the ongoing energy price crisis – whilst energy efficiency solutions alone cannot solve the issue of soaring energy bills, they are an effective way in which the UK can work to futureproof the warmth, health and comfort of its citizens.

The removal of VAT on energy efficiency retrofit measures would act as a major stimulus to the market with the enablement of significant reductions in carbon emissions before the fourth carbon budget. It would promote the retrofitting of existing building stock and create thousands of jobs 42,000 extra full-time equivalent construction jobs and an additional 53,000 jobs in the wider economy over five years by increasing the demand on the retrofit supply chain. 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.

With this in mind, we would welcome the opportunity to meet with you, at a time of your convenience, to discuss how we can support your Department in helping to make the transition to zero rated VAT and deliver on net zero compliant buildings.

Yours sincerely,
The undersigned

 

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