Recommendation 29

HM Government Acknowledged

VAT is a broad-based tax on consumption and the 20 per cent standard rate applies to most goods and services. While there are exceptions to the standard rate, these have always been limited by both legal and fiscal considerations. One example of such an exception to Energy efficiency of existing homes: Government Response 19 the standard rate of VAT is the reduced VAT rate of 5 per cent for the installation of many Energy Saving Materials (ESMs), subject to certain conditions. A VAT relief is available for people who are aged 60 or over or are in receipt of certain benefits, and for housing associations or certain residential buildings such as care homes. In all other cases, the reduced rate applies unless the value of the materials exceeds 60 per cent of the total cost of installation. In such cases, the reduced rate of 5 per cent applies to the labour costs of installation and the standard rate of 20 per cent applies to the cost of the ESMs themselves. Moreover, consumers already benefit from a number of VAT reliefs on construction. The government currently maintains a zero rate of VAT on new-build residential or qualifying buildings. Additionally, a reduced rate of VAT at five per cent is also maintained, 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. This relief encourages redevelopment and is designed to incentivise regeneration. Going further would impose significant additional pressure on the public finances, to which VAT makes a significant contribution. For example, introducing a reduced rate of VAT on all property renovation, repairs, refurbishments and improvements would cost the Exchequer approximately £3.75 billion per year. VAT raised around £130 billion in 2019/20 and helps to fund key spending priorities including on health, schools, and defence. Any loss in tax revenue would have to be balanced by a reduction in public spending, increased borrowing or increased taxation elsewhere. Moreover, this request should be viewed in the context of over £50 billion of requests for relief from VAT received since the EU referendum. Again, such costs would have to be balanced by increased taxes elsewhere, or reductions in government spending.