Construction sector welcomes VAT cut on energy saving materials


UK chancellor Rishi Sunak has revealed that, for the next five years, homeowners will pay 0% VAT on energy saving materials including solar panels and heat pumps.

The move was announced in the Spring Statement, along with the revelation that, from July, the starting threshold for paying National Insurance is rising by more than £3,000 to £12,750.

The chancellor also confirmed a cut of 5p per litre in fuel duty in an attempt to help families and businesses cope with soaring fuel costs in recent times.

The Construction Industry Training Board (CITB) strategy and policy director Steve Radley said, “The inclusion of insulation in the statement today is of real interest for us and industry. Meeting net zero in construction is demand-led and the removal of VAT on energy saving materials is likely to cause a significant increase in the need for low-carbon skills. This tax cut will help to create the confidence industry needs to invest in retrofit training.

“The chancellor said the government will be looking at the issue of employment training in the private sector, which will be reviewed as part of the government’s new tax plan, including assessing whether the Apprenticeship Levy is ‘doing enough’.

“CITB will continue to work with the government on apprenticeship levy reform as apprenticeships are the main route for employers in our industry to get the skilled workforce they need in recovery. Apprenticeship starts are recovering but it’s vital that we continue to drive numbers up. Critical to this will be building on recent reforms of the Apprenticeship Levy Pledge Service to ensure unspent levy funds from larger companies can be accessed by small employers to provide more apprenticeships.”

The decision to slash VAT on home energy saving measures will help boost the drive for greener homes, according to the Federation of Master Builders (FMB).

FMB chief executive Brian Berry said, “With 29 million homes in the UK, of which many are leaky and energy inefficient, decarbonising our existing housing stock represents an important piece of the net zero puzzle. Historically, consumers have not been properly incentivised to commission green upgrades to their homes.

“This VAT cut will help householders insulate their home at a time when energy bills are escalating. It will also provide a much-needed boost to local builders operating in the retrofit market. The Government now needs to build on the VAT cut and implement a long term National Retrofit Strategy to provide business certainty.

“The commitment from the chancellor to improve the UK’s skills system is encouraging, notably the push for greater numbers of employers to train up staff. This is particularly true for construction, a sector that has suffered long-term skills shortages. Smaller firms in the construction sector already conduct the bulk of the training, with 71% of all construction apprentices being trained by them. Measures should focus on providing long-term solutions that incentivise more businesses to play their part in training the next generation of tradespeople. The FMB therefore welcome the chancellor’s commitment to enhance this system.

“Unfortunately, the chancellor made no reference today to the impact of the planned end to the red diesel rebate on many smaller construction firms, already suffering from rising costs. While the cut in fuel duty will support builders in their travel to and from jobs and make buying regular diesel for machinery cheaper, delaying the end of the red diesel rebate would have made a much more positive impact on builders’ wallets. This is precisely the wrong time to heighten costs for building projects, with an additional need for there to be greater alignment in ensuring that green alternatives, such as bio fuels, are affordable and accessible for construction firms.”

Bradley Tully, senior public affairs officer at RICS, commented, “Our findings from the market suggest that the biggest barrier to improve the energy efficiency of homes is cost – 85% of respondents in fact. However, the road to achieving net zero always required the retrofitting of thousands of existing homes across this country to make them greener, and discounts for homeowners looking to support these ambitions have been a long time coming, so we’re delighted the chancellor has finally listened to our call and taken action to cut VAT for families to retrofit their homes and drive down carbon emissions.

“Looking at the wider economic picture – including rising inflation – this poses a significant pressure for businesses, and while the business rate cut being maintained will help our highstreets, it does fall short from the widescale reform that they need to flourish.”

James Talman, chief executive of NFRC (National Federation of Roofing Contractors), said he was ‘delighted’ that the government has listened to calls to promote the installation of energy efficiency measures.

He added, “However, we need to go further to deliver significant emissions reductions and achieve net zero by 2050. Our homes account for 35% of the UK’s energy use and emit 20% of its carbon dioxide emissions. We urge the government to adopt the Construction Leadership Council’s (CLC) National Retrofit Strategy, which offers a comprehensive long-term plan to make our homes greener and get on track to reach net zero.

“The chancellor has also promised today that his Autumn Budget will include a cut to tax on capital investment by businesses. In order to support UK businesses to invest whilst delivering on net zero targets, we urge him to create a Green Annual Investment Allowance, which would allow investors and building owners to reclaim the tax on any green investment in commercial and industrial buildings, such as improving the energy efficiency of roofs. The longer we take to retrofit our existing building stock, the harder that task becomes —  we need to see the chancellor take leaps towards greener buildings.

“The construction industry along with many others will welcome the Chancellor’s announcement that fuel duty will be cut by five pence per litre, giving businesses help to continue operating amid rampant price increases. Whilst NFRC and the wider industry greatly supports efforts to increasingly power our industry with cleaner energy, we welcome moves to support businesses through this particularly challenging period.”