Spring Statement 2022: VAT on heat pumps - Grand Designs Magazine
Cotswolds Passivhaus from Grand Designs

Which energy-saving measures will be VAT free?

Important tax cuts were announced in the chancellor’s spring statement

By Victoria Purcell |

VAT on home energy-saving measures such as insulation, solar panels and heat pumps will be cut from 5% to zero, chancellor Rishi Sunak announced in the Spring Statement 2022.

The changes will take effect from April 2022 and run for the next five years, making it more affordable for households to install energy saving materials (ESMs). The Northern Ireland protocol prevents immediate implementation of the 0% VAT policy in the province, however.

According to the Spring Statement 2022, a typical family with rooftop solar panels installed will save more than £1,000 in total on installation, and then £300 annually on their energy bills.

With the average cost of an air-source heat pump for a three-bedroom detached house around £8,000 to £10,000, that’s a saving of £400-£500. That may not be much of an incentive on its own, but when combined with the Boiler Upgrade Scheme, which will make £5,000 grants available towards low-carbon heating alternatives from April 2022, 0% VAT on energy-saving measures is a significant step in the right direction.

The Grand Designs Passivhaus transformed this old barn in the Cotswolds

Helen and Chris Seymour-Smith built a Passivhaus under an old barn in the Cotswolds. Photo: Chris Tubbs

How have green energy campaigners and those in the industry reacted?

The Federation of Master Builders calls it a ‘step in the right direction for the retrofit market’.

Philip Dunne MP, Chair of the Environmental Audit Committee, hails it a ‘significant win for the sector’.

Phil Hurley, Chairman of the Heat Pump Association, says it is ‘an important step forward’, but calls for further measures including the ‘removal of illogical environmental levies on electricity’.

Dr Doug Parr, Policy Director of Greenpeace UK, says that while the VAT cut on ESM is a ‘welcome start to ending that huge waste of energy, helping keep bills down and cut our gas use’, it can only be the start.

Do the measures go far enough?

Before installing any new energy-efficient heating system, experts advise that it is important to improve your home’s thermal envelope. Ensuring the building is well-insulated – another ESM this will become VAT-exempt from April 2022 – means that your home will require less energy to heat or cool it.

Insulate Britain has called for a national retrofit plan ‘immediately’, taking to Twitter to say that ‘no one will have any money to spend on heat pumps or solar panels’.

Sam Hall, Director of the Conservative Environment Network – a group of Tory MPs who had previously urged the Chancellor to slash VAT on ESM – says that the VAT cut ‘will help families afford these improvements and cut their energy costs permanently’.

The Guardian has also outlined five environmentally friendly policies Sunak could have introduced in the Spring Statement 2022, including a windfall tax on oil and gas companies, skills development to boost the number of people qualified to install insulation and heat pumps, and green mortgages that enable people to add the cost of energy-efficient upgrades to their mortgages at low interest rates.