VAT will be scrapped for energy efficiency measures such as solar panels, heat pumps and insulation to cope with high energy bills, it has been announced.
Chancellor Rishi Sunak said homeowners with materials such as solar panels, electric heat pumps and insulation installed within the next five years would not pay VAT.
Energy efficiency would make a ‘big difference’ to rising energy bills, he told the House of Commons as he set out the decision in the spring statement.
And he said the government would reverse the European Union’s decision to remove wind and water turbines from scope and also apply a zero rate, while all the ‘bureaucracy’ imposed by the EU would be abolished.
‘A family with a solar panel installed will see tax savings worth over £1,000 and energy bill savings of over £300 a year,’ he told MPs .
Mr Sunak said the policy would not immediately apply to Northern Ireland due to ‘loopholes’ in the Northern Ireland protocol, but said the government would raise the matter with the European Commission to “urgent” way, and that support would be offered.
Campaigners have called for action to help households reduce the amount of energy they use in their homes as bills soar due to rising global gas prices, made worse by the invasion of Ukraine by Russia.
The analysis suggests that energy efficiency measures put in place over the past decade will save UK households £1.2 billion this year, or almost £200 on average for the six million homes that benefited from these measures.
But home insulation rates fell sharply after cuts to government schemes levied on consumer bills to improve energy efficiency in 2013, and ministers struggled to design effective policies to encourage homeowners to make their homes more efficient.
The government says it has committed £6.6bn to improving energy efficiency.
The Chancellor’s latest move has been welcomed by the group of Tory MPs from the Conservative Environment Network (CEN) who had previously urged him to reduce VAT on energy efficient products and installations.
MP Stephen Crabb said: ‘This tax cut means more families will be able to afford to insulate their homes, lower their energy bills and stay warm.
“Insulating homes is the fastest way to protect people from high gas prices and reduce our reliance on imported energy.”
If the Chancellor is serious about tackling the problem, this can only be the start
Dr Doug Parr, policy director at Greenpeace UK, said cutting VAT on insulation, solar panels and heat pumps was a “good start” to ending huge energy waste leaky homes, helping to lower bills and reduce gas usage.
But he said: “If the Chancellor really wants to tackle the problem, this can only be the start.
“We need support of around £10billion, partly raised by a windfall tax on oil and gas companies, to provide the help families need to install the clean technologies that will enable us to ‘turn off the gas.’
Jess Ralston, an analyst at the Energy and Climate Intelligence Unit (ECIU), said: “Removing VAT from energy efficiency products such as insulation is an immediate boost for families facing high bills. rising gas.”
“But there are a lot more tools at the Chancellor’s fingertips to get rid of Russian gas and reduce household bills,” she said, such as low-interest loans and incentives to abandon gas boilers.