Chancellor Rishi Sunak says energy efficiency will make a big difference to bills.
23 March 2022
VAT will be scrapped for energy efficiency measures such as solar panels, heat pumps and insulation to tackle high energy bills, it has been announced.
Chancellor Rishi Sunak said that homeowners having materials such as solar panels, electric heat pumps and insulation installed in the next five years would pay no VAT.
Energy efficiency would make a “big difference” to rising energy bills, he told the House of Commons as he set out the move in the spring statement.
And he said the Government would reverse the European Union’s decision to take wind and water turbines out of scope and apply a zero rate as well, while all the “red tape” imposed by the EU would be abolished.
“A family having a solar panel installed will see tax savings worth over £1,000, and savings on their energy bill of over £300 per year,” he told MPs.
Mr Sunak said the policy will not apply immediately to Northern Ireland due to “deficiencies” in the Northern Ireland Protocol but said the Government would be raising the issue with the European Commission as a “matter of urgency”, and that support would be offered.
Campaigners have been calling for action to help households reduce the amount of energy they use in their homes, as bills have soared due to rising global gas prices, worsened by Russia’s invasion of Ukraine.
Analysis suggests that energy efficiency measures installed over the last decade will save British households £1.2 billion this year, or nearly £200 on average for the six million homes which have benefited from the measures.
But home insulation rates fell sharply after cuts to Government programmes levied on consumer bills to improve energy efficiency in 2013, and ministers have struggled to design successful policies to encourage homeowners to make their homes more efficient.
The Government says it has committed £6.6 billion to improving energy efficiency.
The Chancellor’s latest move was welcomed by the Conservative Environment Network (CEN) group of Tory MPs who had previously urged him to slash VAT on energy-saving products and installation.
MP Stephen Crabb said: “This tax cut will mean more families can afford to insulate their home, cut their energy bills and stay warm.
“Insulating homes is the quickest way to help shield people from high gas prices and reduce our dependency on imported energy.”
Dr Doug Parr, policy director at Greenpeace UK, said cutting VAT on insulation, solar panels and heat pumps was a “welcome start” to ending the huge waste of energy from leaky homes, helping keep bills down and cutting gas use.
But he said: “If the Chancellor’s serious about tackling the issue then it can only be the start.
“We need to see around £10 billion of support, part raised by a windfall tax on oil and gas companies, for delivering the help families need to install the clean technologies that will get us off gas.”
Jess Ralston, analyst at the Energy and Climate Intelligence Unit (ECIU), said: “Removing VAT on energy efficiency products such as insulation is an immediate boost for families facing soaring gas bills.”
“But there are lots more tools within the Chancellor’s grasp for getting off Russian gas and reducing household bills,” she said, such as low-interest loans and incentivising the switch away from gas boilers.