On 23 March 2022, the Chancellor of the Exchequer, Rishi Sunak, released his Spring Statement, which included an announcement about a new VAT reduction on energy efficiency measures.
Released on the same day as ONS reported that inflation had hit a 30-year high of +6.2%, the statement listed other initiatives intended to address the UK’s severe cost-of-living crisis. One of these included allocating an extra £500 million in funding for local authorities to support the country’s most vulnerable households.
Fuel and gas prices soared in the first months of 2022 and rose even faster after Russia’s invasion of Ukraine. This, together with other hikes in living costs – on everything from bread to rental payments – has threatened to force many people into deep poverty. As the Energy Saving Trust and numerous media have phrased it, countless families have been faced with “a choice between heating and eating.”
Fuel poverty is one of the great concerns faced by British families. Money Saving Expert founder Martin Lewis recently said that with rising energy costs, “We’re going to have about ten million people in fuel poverty. We have a real, absolute poverty issue going to come in the UK, with food banks oversubscribed, and debt crisis agencies do not have any tools… Just on energy alone, on a conservative estimate within one year, we’re talking about £1,300 in bills going up.”
The government’s own Office for Budget Responsibility has warned that inflation could average above 7% this year – reaching a 40-year high that could prompt the sharpest fall in living standards since records began in 1956. OBR writes that “Total tax and benefit changes in this Spring Statement offset only about a third of the overall decline in real per-person disposable incomes.”
Responding to the Chancellor’s statement in his capacity as Chair of the National Insulation Association, Sustainable Group Chair Derek Horrocks said: “Insulating homes is essential to the success of the government’s plans to reduce household fuel bills and to cut carbon emissions in line with climate objectives. We know that measures are not currently being installed on the scale required, but the decision to reduce VAT to 0% on insulation and other energy efficiency measures is a positive step.
“The NIA welcomes the decision as part of the government’s plans to improve homes, but it does so with caution that other measures and other financial support will be needed. Taking a whole-house, fabric-first approach will help to ensure that homes are fit for low carbon solutions, be it immediately or some years later, so it’s good to see that the VAT change applies to insulation as well as to microgeneration systems.”
For its part, the Chartered Institute of Building responded: “We feel that more can be done to tackle the current cost-of-living crisis and that government should implement a long-term national retrofit strategy to improve the energy efficiency of homes in the UK, helping drive energy bills down and improve the health and wellbeing of occupants.”
Speaking on behalf of SBS, Group Commercial Director Gary Lawson said: “Affordability issues will continue to affect ordinary British families, given all the cost-pressures currently acting on people’s household budgets. A zero VAT rate on energy efficiency products will certainly help, and we welcome that.
“We know that energy costs are rising fast, so it’s more important than ever to adopt a fabric-first approach and ensure that homes hold onto their heat. Taking that approach will help to reduce fuel poverty, reduce national carbon emissions and improve Britain’s energy-security in a politically volatile world. The arguments for investing more – and faster – in energy efficiency retrofit works have never been stronger, so we welcome any government initiatives that speed the roll-out of such measures.”