Rishi Sunak

VAT on energy-saving materials scrapped in Spring Statement 2022

Chancellor Rishi Sunak has today (23rd March) announced that the government will be removing the VAT on energy-saving materials.

In Sunak’s Spring Statement, he reduced the VAT on energy-saving materials — such as solar panels, heat pumps and roof insulation — from 5% to zero, over the next five years, in a move to help families become more energy efficient. 

The chancellor has extended the National Insurance threshold to £12,570 from July 2022, a cut worth over £6bn, saving the typical employee over £330 per year.

The basic rate of income tax will also be cut to 19% in 2024, the first decrease in 16 years.

SMEs were also on the agenda, with the employment allowance increased from £4,000 to £5,000, to start on 6th April. 

The support for SMEs comes on top of 50% business rates relief for eligible retail, hospitality, and leisure properties, also coming in this April. 

There will also be no business rates due on a range of green technology used to decarbonise buildings — including solar panels and batteries, while eligible heat networks will receive 100% relief, which is expected to save businesses more than £200m over the next five years.

Property industry reacts to Spring Statement 2022

Chris Gardner, co-founder of Atelier, commented: “With the cost of building materials surging once again, the chancellor’s surprise tax cut on energy-saving technology offers a welcome safety valve – both to the construction industry and to homeowners looking to save money on their energy bills.

“The scrapping of VAT on vital, but still comparatively expensive, tech like solar panels and heat source pumps is a logical and popular response to the spike in energy prices that kicks in next week. But it will also offer long-term benefits to homeowners, the environment and UK energy policy.

“Every home fitted with solar panels can be one less home drawing power from Britain’s energy grid, and every home heated by an air source pump means one less boiler burning imported gas. While thousands of homeowners and housebuilders would fit energy-saving technology if they could, cost remains a major hurdle. The ‘green premium’ – the difference in cost between using the most energy-efficient versus conventional materials – is slowly reducing as the new technology is produced in higher quantities.

“But with building materials costs rising across the board, today’s 5% cut in the cost of energy-saving technology suddenly makes it more affordable, and we look forward to running the numbers with our developer partners who want to go green."

Jason Tebb, CEO at OnTheMarket.com, commented: “Although the chancellor didn’t deliver anything radical in the way of assistance for the housing market, the removal of VAT on the installation of solar panels, heat pumps and insulation, which he said will reduce utility bills by £300 a year, is a step which will help some homeowners.

"While a return to the stamp duty holiday was never on the cards, further support for first-time buyers, measures to encourage the building of more affordable homes, and a solution to the cladding crisis would also be welcome.” 

Scott Clay, distribution development manager at Together, commented: “It’s promising to see the chancellor push for more green investment and development, not only as this will edge us closer to net zero targets, but also as it will help alleviate future oil price shocks. 

“Today’s cut on VAT for homeowners installing solar panels, heat pumps or insulation over the next five years is another step in the right direction. However, even with average tax savings of £1,000 and over £300 on energy costs savings per year, the actual cost and installation of eco-materials is still very high and all too often severely underbudgeted for. Families and property investors alike will need to find this finance from elsewhere.”

Jason Mountford, financial planning expert at Irwin Mitchell, claimed that while the removal of VAT for energy-efficient additions would save homeowners £1,000 on average, “the average cost to install home solar panels is £4,800,” and therefore unlikely to impact the hardest hit by the energy crisis.

Iain McKenzie, CEO at The Guild of Property Professionals, said: “While energy price rises will increase the cost of powering our homes, the measures taken to cut VAT on environmentally-friendly power sources and energy-saving insulation will give homeowners some relief going forward.”

Sunand Prasad, principal at Perkins&Will, commented that there is “no doubt” we are reaching boiling point when it comes creating energy-efficient homes.

"This battle to retrofit our homes is not only vital to combat the climate emergency, it will also help families across the country save on skyrocketing energy bills.

"We strongly welcome the cut to VAT on energy-saving materials such as solar panels announced today, and we urge the government to continue prioritising energy efficiency to level up the entire country towards a greener future."

Brian Murphy, head of lending at Mortgage Advice Bureau, believes the cost of buying and fitting these materials — even with VAT cut — means that it can still come at considerable expense to homeowners.  

“A better alternative would be to provide a subsidy or incentive to actually encourage the take-up of these products, as opposed to tinkering at the edges with small tax cuts.”

Paul Breen, managing director for affordable housing specialist Living Space, stated: “We welcome the range of measures Sunak has put in place to acknowledge and help to tackle the widespread cost of living crisis. However, this is barely scratching the surface of the current issues. 

“Soaring energy price rises are hitting those on low incomes disproportionately. Far more needs to be done to prevent more households from falling into spiralling debt by simply using their cars and heating their homes. 

“With appropriate funding, the affordable housing sector can lead the way in decarbonising the UK’s housing stock. The uplift in cost to build an EPC A-rated home is a fraction of the price of retrofitting an existing home with the same energy-saving technology. 

“Air source heat pumps, solar PV roof panels, and enhanced levels of insulation are measures that do cost more to install, but the payback time is short. With this in mind, we feel the Future Homes Standard should be much more ambitious, with housebuilders heavily incentivised to deliver zero carbon-ready homes.”

Russell Pedley, co-founder and director at Assael Architecture, said: "The surging cost-of-living crisis continues to drive a wage-price spiral, which is pushing inflation into overdrive. 

“The same prevailing trends are apparent across the construction industry, where material shortages still recovering from Covid-19 have forced base prices to a near 40-year high. 

"Depressed consumer confidence, which threatens to stall life decisions, like buying or renting a property, should not mean that the government abandons the 300,000 homes per year figure first spearheaded in 2015. 

“These delays mask an alarming undersupply which has long introduced systemic uncertainty to housing affordability, now exacerbated by runaway costs across the board, which desperately require government intervention.”

Paresh Raja, CEO at Market Financial Solutions, commented: "The Spring Statement was never likely to contain any major surprises as far as the property sector was concerned — at least not directly. But action was needed and, positively, it was taken to ease pressure on people's finances in the short-term. In turn, this will help ensure the property market faces no nasty shockwaves. 

"Rising inflation and interest rates are affecting both homeowners and homebuyers, impeding the amount they can borrow and save. So, it was positive to see the chancellor cut fuel duty and financial support to households across the UK. The tax breaks for those making green improvements to their homes is also a welcome decision, encouraging the right type of property renovation.

"Looking to the property market, with demand still outweighing supply so significantly, it is likely that house prices will continue to rise as they have been. But, for lenders, now is the time to act. We cannot leave it to the chancellor alone to offer support to those hoping to get on or move up the property ladder. Rather, lenders' focus must be on supporting their existing and prospective clients as best they can.

"Flexibility will be key; being too rigid in how and when you lend risks alienating certain buyers in the current climate, so lenders ought to consider how they can best meet each borrower's particular needs and provide support to help them navigate the economic challenges they are facing."

Stuart Law, CEO of at the Assetz group, said: “With the Bank of England raising rates again to combat inflation, the cost of housing — by far people’s biggest monthly outgoing — is getting more expensive at the worst possible time. 

“While we face an immediate crisis with the cost of energy, we also need to address longer-standing structural, economic and policy issues that are supporting ongoing house price growth. Price growth isn’t just about a knee-jerk response to the pandemic or lingering issues to do with post-Brexit trade, although of course both continue to impact the market. 

“How we want to live is fundamentally supporting high demand, while an onerous planning system, labour and materials shortages and high land prices continue to hamper construction output. 

“We urgently need to see the content of the much-delayed Planning Bill to understand how this might unlock development by bringing down build costs and, as a result, temper price growth to make housing more affordable for all. Ultimately, balancing supply and demand is the only sustainable way to ensure reasonable levels of house price growth and accessibility to housing for people of all incomes.”

John Phillips, national operations director at Just Mortgages said: “As expected, there wasn’t anything directly related to the mortgage sector in the Spring Statement. 

“The housing market has shown its resilience recently and, although the stamp duty holiday certainly kick-started a frenzy in the last few years, another SDLT break isn’t necessary to keep the market moving.  

“It is encouraging that measures have been put in place to ease the cost-of-living crisis, and although the inflation and rising energy prices may impact some, there are still people looking to move to keep the market buoyant and brokers busy. 

“As activity settles back to pre-pandemic levels, there is still a steady stream of buyers, and with the Monetary Policy Committee increasing base rate recently, advice from brokers will be even more critical than usual. 

“Rates look set to continue rising, and this may spark moves and remortgages as borrowers and brokers look to fix ahead of rates hitting their peak.”

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