Last week, we welcomed the new Prime Minister, Andy Burnham. We were also encouraged to see immediate action to reduce energy bills for households by removing the 5% VAT from electricity bills.
Now, we are calling on the Government to extend its current VAT exemption on the installation of energy-saving materials (ESMs). Currently, the exemption ends on 31 March 2027 with no Indication on whether this will be extended.
With support from almost 50 trade bodies, manufacturers, suppliers, third-sector organisations, social housing providers and others, the SEA has written to the new Prime Minister and Chancellor of the Exchequer. The letter outlines how effective the 0% VAT rate has been to help reduce the upfront cost of energy efficiency measures for households and landlords across Great Britain at a critical time for the sector.
The letter also recognises the new Prime Minister’s immediate focus on reducing costs for consumers, noting that ESMs will further help to reduce demand and crucially, help to decrease fuel poverty levels across the country.
This exemption has driven growth in the energy sector, while making these improvements more affordable for households. The 0% rate applied to measures such as heating controls, insulation measures, draught proofing, solar panels, low carbon heating systems such as heat pumps and wood-fuelled boilers, battery storage, and more.
Allowing the VAT relief to expire, risks creating further market uncertainty and could discourage some households from investing in measures that reduce energy consumption, lower bills, and cut carbon emissions.
This also comes at a time when the Government has committed to scaling up domestic decarbonisation through the Warm Homes Plan. The Climate Change Committee’s latest Progress Report to Parliament also highlighted that faster electrification would help to cut UK household bills.
The Committee specifically noted that the pace of heat pump installations has slowed, exposing residents to fossil fuel price shocks. Incentives such as VAT exemptions on measures including heat pumps are therefore important in maintaining installation momentum.
We are also encouraged to see an Early Day Motion tabled earlier this month, sponsored by Dr Simon Opher MP, supporting an extension to the zero VAT rate.
We continue to engage with Treasury officials on this matter and look forward to working with the Government to develop new policies and initiatives that will help create lower carbon, warmer, and healthier buildings fit for the future.
“It is clear the instrumental role that 0% VAT on energy saving measures has had on making energy saving measures more affordable for homeowners and landlords across the country. This is further demonstrated by a previous extension in 2022. Imminently extending this exemption beyond March 2027 will provide the necessary preparation time for industry, reaffirms Labour’s clean growth plans and puts us one step closer to clean power by 2030.
I call on the Government to press ahead in its plans to strengthen energy security by supporting clean energy solutions that reduce our exposure to fossil fuel price shocks.”
“The prior decision to not charge consumers VAT for energy saving materials has been instrumental in accelerating installations, and we’re calling on the Government to continue this trend.
Special VAT conditions have also been significant in incentivising spend across other sectors, including charities, welfare, education, and more.
We are delighted to see the new PM take immediate action to provide relief to bill payers. However, with electricity prices remaining high, and geopolitical factors continuing to drive fossil fuel price volatility, the case for extending VAT exemptions for energy saving materials is stronger than ever.”
“The NHDG wholeheartedly backs the request for the government to extend the zero rate of VAT on the installation of energy-saving materials (ESMs) beyond its current expiry date. The retrofit industry continues its upward trajectory, but communities will face the brunt of a sudden decline in installations. It’s vital that the government recognises the positive impact being made to lives across the country, which will continue at scale so long as the industry can operate under the same conditions.”