Insulation prices and VAT

[Radian]

Considering the current crisis in energy prices and the UK's commitments to CO2 reductions what excuse might there be for not aero rating VAT on all insulation materials?

I understand the reluctance to remove VAT on energy bills as it equally benefits the wealthy - but when it comes to refurbishment and home improvement I would think more of the less well-off in society would be the major beneficiaries.

[Iceverge]

I like the simplicity of the idea but I fear the price of insulation would just go up.

 

People don't seem very price sensitive to the cost of it anyway. Plenty of people use PIR and phonetic where a much cheaper but slightly thicker layer of EPS or mineral wool would do. 

 

Instead perhaps over 5 years ratchet a progressive VAT burden to higher users, much like income tax. It would become more financially attractive to use less and generate more for higher users. EG if you live in a small house even with a poor EPC you'll still use less than energy than someone in a new 400m2 mansion with a pool. The later would pay the same for their first kWh but much more for the extra they took. 

 

 

[oldkettle]

While I understand the reasons, the outcome would be the same as with energy bills: the larger one's house is, the more insulation is needed hence the benefit is larger.

It also seems that the cost of insulation itself is not 80% of the overall cost, the work is very expensive and disruptive. 

[Radian]

1 hour ago, Iceverge said:

I like the simplicity of the idea but I fear the price of insulation would just go up.

 

 

Yet the system allows VAT reclaim for new builds and this would be the same mechanism I'm proposing. Is it really the case that knowing everyone can recoup the VAT would float the prices higher?

 

1 hour ago, oldkettle said:

While I understand the reasons, the outcome would be the same as with energy bills: the larger one's house is, the more insulation is needed hence the benefit is larger.

It also seems that the cost of insulation itself is not 80% of the overall cost, the work is very expensive and disruptive. 

 

But the simple logic I'm applying is to put money into energy saving rather than paying for usage. Grants and one-off payments target their benefits to the the less well-off but have to be kept up indefinitely. The effect of encouraging greater use of insulation is a long-term and lasting investment into the general housing stock so the benefit does not just 'go up in smoke' as it does when assisting with energy costs. The latest fiasco of a grant scheme is about to close having fallen very short of its objectives. No doubt there will be more to come but they're always very complex and that seems to be their downfall.

 

I take your point about the cost of insulation materials not always being the bulk of the total cost of energy efficiency refurbishments but, speaking as a self-builder, it certainly can be. And the VAT paid to trades that might be employed to do the work should also be reclaimable as with any new build. I'm really suggesting classing refurbishment for energy efficiency as being treated the same as new build. I also feel that such a measure would make for a powerful publicity campaign that would encourage more take-up in general.

 

I have just been looking at this issue as an excercise in "follow the money". The VAT collected by insulation suppliers goes back to the treasury who are on the other hand are distributing tax receipts to subsidise energy generation - the bulk of which currently goes to fossil fuel suppliers but a proportion of which goes out via local councils for grant schemes. Kind of a needless short-circuit.

[oldkettle]

22 hours ago, Radian said:

 

I have just been looking at this issue as an excercise in "follow the money". The VAT collected by insulation suppliers goes back to the treasury who are on the other hand are distributing tax receipts to subsidise energy generation - the bulk of which currently goes to fossil fuel suppliers but a proportion of which goes out via local councils for grant schemes. Kind of a needless short-circuit.

 

This makes sense. I agree that many grant schemes were unsuccessful and that in many cases money just keep going around with a lot being wasted on the way. 

 

Unfortunately - and this is obviously nothing but my personal view - zero vat  on  "refurbishment for energy efficiency " would in practice just lead to all the unintended consequences that we can think of plus some that we cannot. For example, trades - in agreement with homeowners - would start quoting  inflated prices for "u-value improvements" while in reality doing some other work which is completely unrelated to this. If vat receipts go down the government will have to raise the money somewhere else. Tax system needs to be simple, every exception makes it worse. 

[SteamyTea]

If a tax is reduced, or even abolished, in one area, another area, or areas, will have to have a corresponding increase.

For at least the last decade, and probably a lot longer, the public have been told that they need to reduce energy usage.  Now that there has been an unexpected, large price increase in cost, everyone is complaining that 'something must be done', but they don't want to pay for it.

There is no magic solution here.  No one is going to invent a small device that costs 100 quid and slashed an energy bill by 70%.

Yesterday I used 20 kWh of electricity, that fed me, kept me warm, enough hot water for cleaning, allowed me to play on here, and let me put the lights on when I got home from work.  It also kept my milk cool and fresh.

I drove about 50 miles, so that will be another 45 kWh of usage.

House energy cost me about £3, car £6.75.

Two coffees cost me £5.50.

[Radian]

What's the reason for new builds to be zero VAT rated?

[SteamyTea]

37 minutes ago, Radian said:

What's the reason for new builds to be zero VAT rated?

Who knows. Does seem odd.

[Radian]

49 minutes ago, SteamyTea said:

Who knows. Does seem odd.

It is because the Secretary of State for Housing, Communities and Local Government has deemed it to be a key measure in increasing the housing stock. If the government has a pressing objective, they will use taxation as a tool to meet it. Yes they will always resist tax cuts as they have done in the case of the Federation of Master Builders Cut The VAT Campaign but there is a list of priorities that ultimately dictate their objectives. Moving swiftly up that list is energy supply and its impact on cost of living, security and obligations to the  legally binding international treaty on climate change.

 

Such is the scale of difficulties in improving the energy efficiency of the existing housing stock in preparation for low carbon heating, I'm expecting it to be recognised sometime soon. I am therefore reluctant to make a large investment in my own home at the present time if shortly thereafter financial assistance becomes available.

[SteamyTea]

12 minutes ago, Radian said:

am therefore reluctant to make a large investment in my own home at the present time if shortly thereafter financial assistance becomes available

I bought a new car and had to pay a 10% new car tax.

That car got written off, and after a few months, the I Durance paid out, bought another new car, 5% new car tax. Then the new car tax was dropped completely.

Cars were the same price. So no consumer saving, and I doubt the dealer made an extra 5%.

[oldkettle]

6 hours ago, Radian said:

 I am therefore reluctant to make a large investment in my own home at the present time if shortly thereafter financial assistance becomes available.

 

It is a gamble that can pay off or can cost you. Last spring I had a quote for the outbuilding. It was OK and we had enough money to pay for the whole thing but I felt certain parts were too high. In the last 10 months I have advanced with the preparation and plans quite a bit but I am sure you know that materials have simply jumped, including insulation. Whatever we choose now it is going to cost quite a bit more than last year. Have I learned my lesson? No idea, I have built nothing yet. 

[Roger440]

7 hours ago, Radian said:

It is because the Secretary of State for Housing, Communities and Local Government has deemed it to be a key measure in increasing the housing stock. If the government has a pressing objective, they will use taxation as a tool to meet it. Yes they will always resist tax cuts as they have done in the case of the Federation of Master Builders Cut The VAT Campaign but there is a list of priorities that ultimately dictate their objectives. Moving swiftly up that list is energy supply and its impact on cost of living, security and obligations to the  legally binding international treaty on climate change.

 

Such is the scale of difficulties in improving the energy efficiency of the existing housing stock in preparation for low carbon heating, I'm expecting it to be recognised sometime soon. I am therefore reluctant to make a large investment in my own home at the present time if shortly thereafter financial assistance becomes available.

 

I think we can safely assume any financial assistance/incentive will be channelled via approved cowboys, sorry, builders, who will inevitably do a crap job. The program will fail, fall into disrepute, and the politicians will say lessons will be learnt.

 

You can be sure nothing sensible will be done.

 

Im just getting on with. 

[Radian]

3 hours ago, oldkettle said:

 

It is a gamble that can pay off or can cost you. Last spring I had a quote for the outbuilding. It was OK and we had enough money to pay for the whole thing but I felt certain parts were too high. In the last 10 months I have advanced with the preparation and plans quite a bit but I am sure you know that materials have simply jumped, including insulation. Whatever we choose now it is going to cost quite a bit more than last year. Have I learned my lesson? No idea, I have built nothing yet. 

 

I am sincerely sorry to hear that. We know we were very lucky to have completed major extension works shortly after the first lockdown before price hikes and material shortages. These works have increased our living space by around 70% but now show up the inadequacies of the 'old' building's insulation so we really want to bring that up to similar standards - however our budget has already been blown. Hence my attempt at crystal ball gazing.

 

3 hours ago, Roger440 said:

You can be sure nothing sensible will be done.

 

Im just getting on with. 

 

You're almost certainly right. I wish you the very best of luck.

[Iceverge]

Affordable energy and food prices, are a prerequisite of political stability and avoiding civil unrest.

 

A wise politician playing the long game would work to reduce the national energy demand as much as possible and secure the needed energy supplies at a guaranteed tarrif. 

 

This subsidy is obviously just plastering over the cracks short term. 

 

 

 

 

 

 

[Radian]

1 hour ago, Iceverge said:

Affordable energy and food prices, are a prerequisite of political stability and avoiding civil unrest.

 

This isn't France y'now ?

 

But yes, this energy thing feels weird to me. Can't quite put a finger on it but it's a new and uncomfortable experience not being able to enjoy being warm. Yes I can afford to keep the lights and heat on (unlike some ?) but there's no pleasure in it knowing that it's using up twice as much of my budget as it did only a year ago.

[SteamyTea]

1 hour ago, Radian said:

there's no pleasure in it knowing that it's using up twice as much of my budget as it did only a year ago.

Last year I drove just over 18k miles, at not much over £1/litre.

Last few months I have alreaded done 20k miles at close to £1.45.

And I am loosing two extra days work every week.

Still January us almost over and we have more than an hour's worth of extra daylight.

Edited January 29, 2022 by SteamyTea

[Radian]

I have been a die-hard petrol head all my adult life but the cost of keeping two cars running after I retired was unjustifiable. I decided to take my pride and joy off the road instead of SWMBO's because hers was far more economical. I had complete control of this situation - my need for a car being no more than a luxury given that the practicalities of life could be managed by sharing a car between the two of us. That degree of control is not available when it comes to heating our home other than by reducing its energy needs. Moving to a different house would mean defeat for everything I've worked towards. Not going to happen - yet. I do take heart from your observation about increasing daylight. I still have plenty of finishing touches to do - especially seeing as how my TS order finally showed up!

[Radian]

Breaking news!

 

Spring statement 2022: Rishi Sunak abolishes VAT on energy saving materials for homeowners.

 

Homeowners will not pay VAT on solar panels, insulation and heat pumps for the next five years.

[Gone West]

2 hours ago, Radian said:

Homeowners will not pay VAT on solar panels, insulation and heat pumps for the next five years.

It didn't seem clear to me whether that was when purchased or only when installed by a company.

[SuperPav]

Seems like only when installed! 

 

Although this is tipping the balance now towards me just using my relatively inactive Ltd company to branch out into energy-saving material installation.

If I VAT register through election (currently only turn over a little bit so below the threshold in planning consultancy/design), I can then install all of our insulation (~15k's worth) and even with me paying my Ltd company a nominal labour rate for the installation, if it's all zero rated, it will save a decent amount.  Otherwise I'm either paying 20% on anything I DIY install (as it's a renovation not a new build), or I get 0% on installed materials but paying someone the labour will wipe out any savings.

 

Although I am pleased that we were delayed in getting the cavity wall foam insulation - that should give a modest £400 saving by losing the 5%.

 

All this of course assumes that the firms won't just up their prices by 5% to offset the VAT...