Source · Select Committees · Environmental Audit Committee
Recommendation 35
35
Paragraph: 226
The Government now has the latitude to propose the variation, or the abolition, of value...
Recommendation
The Government now has the latitude to propose the variation, or the abolition, of value added tax on certain categories of goods. We recommend that the Chancellor of the Exchequer bring forward proposals to reduce the rate of VAT on repair services and products containing reused or recycled materials to increase the circularity and resilience of the UK economy. We recommend that the Chancellor of the Exchequer bring forward proposals to reduce the rate of VAT on repair services and products containing reused or recycled materials to increase the circularity and resilience of the UK economy. The Government should also reduce VAT on green home upgrades to incentivise more people to install low-carbon technologies and improve the energy efficiency of existing homes.
Paragraph Reference:
226
Government Response
Acknowledged
HM Government
Acknowledged
VAT is a broad-based tax on consumption and the twenty per cent standard rate applies to most goods and services. While there are exceptions to the standard rate, these have always been strictly limited by both legal and fiscal considerations. Such exceptions include a reduced rate of VAT, subject to certain conditions, for residential renovations, such as building services and materials, and the installation in residential accommodation of various environmentally friendly home improvement materials, such as insulation and draught stripping. Going further would come at a cost to the Exchequer. For example, expanding the existing reduced rate to include all residential repairs and renovations is estimated to cost £3.75 billion per year, and must be viewed in the context of over £50 billion of requests for relief from VAT received since the EU referendum. Any loss in tax revenue would have to be balanced by a reduction in public spending, increased borrowing or increased taxation elsewhere. However, the Government has set out ambitious plans to make the UK a leader in clean energy to help achieve net zero targets. At the Summer Economic Update, the Chancellor announced four new schemes to support the decarbonisation of buildings. The Government is also supporting the industry by providing an additional £300 million in 2021/22 for local authorities to use to tackle draughty and poorly insulated homes. It will mean, in total, £1.3 billion will be spent on improving energy efficiency in 2021/22 through the schemes, after the successful delivery of £1.2 billion this year. The Government is committed to supporting building decarbonisation, as evidenced by the scale of this investment, other funding mechanisms such as the Energy Companies Obligation (‘ECO’), and the non- spending steps to be outlined in the forthcoming Heat and Buildings Strategy.