Source · Select Committees · Environmental Audit Committee
Recommendation 40
40
Acknowledged
Paragraph: 215
We welcome the steps taken by the Chancellor of the Exchequer to address the inequity...
Conclusion
We welcome the steps taken by the Chancellor of the Exchequer to address the inequity in the VAT regime between new build and retrofit. We nevertheless note that this differential treatment will expire in 2027 and is limited in scope, covering only Energy Saving Materials rather than broader aspects of retrofit work
Government Response Summary
The government acknowledges the VAT inequity and highlights existing reduced VAT rates for certain residential renovations. Extending this to all property renovations would cost £3.75 billion per year.
Paragraph Reference:
215
Government Response
Acknowledged
HM Government
Acknowledged
As referenced in the report, at Spring Statement the Chancellor announced the removal of the 5 per cent VAT charge on the installation of energy saving materials (ESMs) in Great Britain for the next five years and the permanent reversal of restrictions imposed by the Court of Justice of the European Union, removing complex eligibility conditions and reinstating wind and water turbines as qualifying materials. This represents a £280 million tax cut to support investment in energy efficiency over the next 5 years. The Government already maintains a reduced rate of VAT at five per cent, subject to certain conditions, for residential renovations, such as building services and materials. This includes conversions of buildings from one residential use to another, converted from commercial to residential use, and the renovation of properties that have been empty for two years or more prior to the renovation work. Extending this to all property renovation, repairs and improvements would cost the Exchequer approximately £3.75 Billion per year, much of which would provide VAT relief on renovations that have little or no energy efficiency benefits. Again, these costs would have to be balanced by changes elsewhere and risks reducing the money available to support important public services, including the NHS and policing.