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by Sean Hill on May 4, 2023
RISE Design Studio, a small contemporary design-led architecture studio with 20 years of experience, is passionate about creating low-energy and low-embodied carbon designs. We believe in the power of sustainable architecture to combat climate change and create a better future for generations to come. That’s why we stand with MPs who are calling on the UK government to reduce VAT on green home improvements.
In an encouraging move, the UK government has announced its plan to scrap VAT on green home improvements for the next five years. Chancellor Rishi Sunak has expressed his intention to cut VAT to zero on solar panels, heat pumps, and insulation installed in British homes. While the details are yet to be clarified, including whether the VAT reduction covers installation or just materials and products, this initiative holds great potential. By making green home improvements more affordable, the reduced VAT will enable more people to enhance the energy efficiency of their homes.
The significance of this decision lies in the UK government’s legally binding commitment to reduce the country’s carbon emissions by 78% by 2035, compared to 1990 levels. This ambitious carbon reduction plan, the most progressive in the world, is a commendable step toward achieving Net Zero emissions by 2050. However, for this commitment to translate into tangible action, the government must implement measures that support and encourage green home improvements. Industry experts strongly urge the government to fulfil its promise by reducing VAT on such initiatives.
One crucial area that requires urgent attention is the high reliance on fossil fuels for heating UK homes. Astonishingly, over 90% of UK homes are heated using gas and oil, accounting for nearly 20% of the country’s carbon emissions. Surveys have shown that almost 80% of UK residents support renewable energy for electricity and heat. However, the adoption of renewable energy solutions has been slow, with only 36,000 heat pumps installed in the UK in 2020.
To meet the government’s ambitious target of achieving Net Zero by 2050, the Climate Change Committee (CCC), an independent government advisory group, recommends a significant increase in the number of heat pumps. The CCC suggests that by 2025, the UK should have 415,000 heat pumps installed annually. Although the government has committed to reaching 600,000 installations per year by 2028, this falls short of the CCC Pathway, which calls for 900,000 installations by 2028 and 1.1 million by 2030.
The high initial cost of energy-efficient home improvements remains a major barrier preventing many individuals from investing in these sustainable upgrades. By maintaining VAT at 20% on green home improvements, the government exacerbates this obstacle. It is crucial for the government to do more to reduce this financial barrier and ensure that greener heating options are accessible to all.
The Department for Business, Energy, and Industrial Strategy is preparing a new policy aimed at reducing carbon emissions from home heating in the UK, with an expected release later this week. However, according to The Guardian, ministers seem resistant to pressure from MPs, environmental experts, and the construction industry to reduce VAT on green home improvements.
It is worth noting that VAT on energy-saving improvements to existing homes increased from 5% to 20% in October 2019. At the time, HMRC cited EU tax laws as the reason for this increase. Now that the UK has left the EU, we are no longer bound by these tax laws. It is high time for the government to amend this policy and fulfill its promise to exercise control over taxes as a consequence of leaving the EU.
Interestingly, while new builds are not subject to VAT, green home improvements for existing homes are still taxed at the higher rate of 20%. This discrepancy seems illogical, as minimising the carbon footprint of existing homes is often the more sustainable option.
Regrettably, the government’s commitment to addressing the climate emergency has been marred by the withdrawal of support. In a puzzling move, the government terminated the Green Homes Grant initiative after just six months, offering little explanation. Under this scheme, homeowners could receive grants of up to £5,000 or £10,000 for energy-efficient home improvements. Consequently, the absence of this scheme leaves little government support or incentive for individuals seeking to reduce the carbon emissions of their homes. Additionally, the tax rate on burning fossil fuels for home heating remains at a mere 5%.
This lack of government support and the higher tax rate on green home improvements adds to the challenges faced by those considering transitioning from gas boilers to greener heating options like air source heat pumps. It is essential for the government to align its actions with its commitment to reducing the UK’s carbon emissions and ensuring affordable and accessible energy for all. By lowering the VAT on green home improvements, the government would demonstrate its genuine dedication to assisting individuals in making these crucial changes.
Furthermore, the government must prioritise helping people living in social and rented housing to lower their energy bills and reduce their carbon footprint. The government should ensure that policies enabling home improvements are not exclusive to homeowners but also extend to those living in social housing. The current provision of reduced VAT on energy-saving home improvements for specific benefits recipients falls short of addressing the needs of those on lower wages. Even for those who qualify for reduced VAT, affordability remains an obstacle for the majority.
NGOs such as Insulate Britain are calling on the government to implement policies that guarantee adequate insulation for all UK homes by 2030. They urge the government to prioritise insulation in social housing (including both council and housing authority-owned properties) by 2025. Without a comprehensive insulation policy, the risk of widening the poverty divide looms large, as individuals living in energy-inefficient homes face higher heating and electricity bills.
It is also worth noting that there is currently no direct incentive for private landlords to improve the carbon and energy efficiency of their properties. While tenants would benefit from lower energy bills and improved comfort, the increase in rental yield remains minimal. However, as awareness of the advantages of living in energy-efficient homes grows, this may change.
One effective approach to ensure action is for the government to enforce legal requirements regarding insulation and energy efficiency levels in homes. By doing so, the government would compel landlords to take steps toward creating a greener society. This approach would guarantee that no one is left behind on the path to sustainability.
At RISE Design Studio, our mission is to collaborate with clients and improve their homes, reducing their properties’ carbon emissions, mitigating overheating issues, and enhancing energy efficiency. We possess extensive experience in designing with Passivhaus principles and can offer expert advice on low-energy home improvements. However, we believe that the government must do more to support everyone in making sustainable changes.
While reducing VAT on green home improvements is just one step in the right direction, it holds significant potential to create a greener and more sustainable world that is accessible and fair for all. Our commitment to sustainable architecture extends beyond our own projects, and we urge the government to take bold action in facilitating the transition to a low-carbon future.
To explore our portfolio of low-energy home improvements and learn more about RISE Design Studio’s work, click here. If you are interested in improving the energy efficiency of your home, feel free to contact us at 020 3973 9073. Together, let’s create a greener and more sustainable future.
If you would like to talk through your project with the team, please do get in touch at mail@risedesignstudio.co.uk or give us a call on 020 3973 9073
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