Home insulation, solar panels and heat pumps will become cheaper to install after the chancellor abolished VAT for energy-saving products for the next five years.
The Treasury said a typical household having rooftop solar panels fitted would save more than £1,000 thanks to VAT falling from 20 per cent to zero. The solar power would also save an annual £300 on energy bills.
Rishi Sunak said EU law had constrained the government’s ability to cut VAT on energy-saving materials, meaning only some people had been benefiting from the reduced rate of 5 per cent. Brexit had made it possible to abolish the tax on those materials for everyone.
The reduced rate is currently available for people over 60 or in receipt of certain benefits, or when the value of the materials is 60 per cent or less of the total cost of installation.
The zero rate will come into force next month on a date yet to be confirmed. It will also apply to wind and water turbines, which are not eligible for the 5 per cent VAT rate following a ruling by the Court of Justice of the European Union.
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The VAT cut will not apply in Northern Ireland due to the protocol agreed with the EU but the chancellor said it would get equivalent funding.
Reducing VAT from 20 per cent to nothing could cut the cost of installing cavity wall insulation by £190 and loft insulation by £160 for the average household, according to estimates by the Conservative Environment Network (CEN). It said these improvements could lower annual energy bills by up to £399 and £493 respectively under the energy price cap coming into force on April 1.
Sam Hall, CEN director, said: “Insulating homes is one of the best ways to keep people warm, reduce Russian gas imports and lower energy bills. Slashing VAT on energy saving materials and installation will help families afford these improvements and cut their energy costs permanently, saving the Treasury money in the long run by dealing with one of the root causes of fuel poverty.”
Caroline Lucas, the Green Party MP, welcomed the cut but said Sunak should have committed to a nationwide energy efficiency scheme.
The UK Green Building Council said the cut was a step forward but “not a game-changer”.
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“Most installation jobs would have attracted the reduced 5 per cent VAT anyway, as opposed to being subject to the 20 per cent rate. What is welcome . . . is the signal it sends to industry and households and that it also simplifies the VAT regime for installers, especially [small and medium-sized businesses].”
