Chancellor Rishi Sunak has delivered his mini-budget and received a mixed response from the merchant sector.
Chancellor Rishi Sunak delivered his mini-budget today (Wednesday 23 March) which has a received a mixed response from the merchant sector.
Against a backdrop of rising inflation, huge increases in fuel and energy costs and a significant fall in living standards, Chancellor of the Exchequer, Rishi Sunak, has announced a number of measures, including some tax cuts, in his Spring Statement. Following on from the already announced policies to help consumers pay energy bills, the Chancellor has also launched further tax breaks for those investing in green technology.
The budget covered several issues of particular interest to the industry, including:
John Newcomb, CEO of the Builders' Merchants Federation, said: “The Chancellor offered two rays of hope in his Spring Statement, with a temporary reduction in fuel duty and the removal of VAT on energy saving materials for the next five years. We have long supported zero-rated VAT on these materials, both to promote energy efficient upgrades to our existing housing stock and support the drive to net zero, and welcome the Chancellor’s announcement.
“However, the potential impact of these positive measures must be considered within the broader context of building materials supply, where the outlook is much less certain.
“Even before the war in Ukraine, rising energy, freight and labour costs were reflected in price increases for many essential building products, with many manufacturers already announcing increases of 4-10% this year and energy intensive products increasing by as much as 20%.
“With continuing disruptions to global supply chains, particularly in oil and gas, the Office for Budget Responsibility already expects inflation to rise to 7.4% this year, with further increases to come. I am sure a lot of building materials manufacturers, and their customers, would have been looking for more support."
Chief Executive of National Federation of Roofing Contractors, James Talman, said: "I am delighted to see that the Government has listened to our calls as an industry to promote the installation of energy efficiency measures by slashing VAT to zero per cent, on technologies including rooftop solar and roof insulation. It is encouraging to see the Government invest in minimising heat loss and creating clean energy to power our homes.
"However, we need to go further to deliver significant emissions reductions and achieve net zero by 2050. Our homes account for 35% of the UK’s energy use and emit 20% of its carbon dioxide emissions. We urge the Government to adopt the Construction Leadership Council’s National Retrofit Strategy, which offers a comprehensive long-term plan to make our homes greener and get on track to reach net zero.
"The Chancellor has also promised today that his Autumn Budget will include a cut to tax on capital investment by businesses. In order to support UK businesses to invest while delivering on net zero targets, we urge him to create a Green Annual Investment Allowance, which would allow investors and building owners to reclaim the tax on any green investment in commercial and industrial buildings, such as improving the energy efficiency of roofs. The longer we take to retrofit our existing building stock, the harder that task becomes—we need to see the Chancellor take leaps towards greener buildings.
"The construction industry along with many others will welcome the Chancellor’s announcement that fuel duty will be cut by five pence per litre, giving businesses help to continue operating amid rampant price increases. While NFRC and the wider industry greatly supports efforts to increasingly power our industry with cleaner energy, we welcome moves to support businesses through this particularly challenging period."
Kevin Wellman, CEO of the Chartered Institute of Plumbing & Heating Engineering (CIPHE), commented, “While we battle the cost of living rises, installers and the public alike will welcome the fall in fuel duty, and the rise in earning threshold for National Insurance. It is also encouraging to see the government support the most vulnerable households through increased funding for the Household Support Fund.
“There is good news for consumers looking to improve the energy efficiency of their homes and invest in green technology. The 0% VAT rate will help cut costs and increase demand. However, we must ensure systems are designed and installed correctly to offer the required energy savings. Savvy installers will be signing up to renewable training, such as the CIPHE’s Low Temperature Heating and Hot Water Systems in Dwellings qualification, to ensure they have the knowledge and skill to install such systems.
“As was seen via the green homes grant scheme’s failure, the UK does not currently have enough trained installers of the green technologies supported by the VAT cut. I would have welcomed an immediate strategy to address this, but a review of employee training and the Apprenticeship Levy is long overdue.
“As we have documented in our manifesto, there is a dire need to kickstart apprenticeship starts in the plumbing and heating sector. Tax breaks for R&D will only help manufacturers become more innovative at a critical time for our industry, and we would urge the Government to be generous. Finally, in an industry that includes so many small businesses, it is good to see them get a boost of around £1,000 through the rise in the employment allowance.”
The Heat Pump Federation and its members welcomed the Chancellor’s decision. Bean Beanland, the HPF’s Director of Growth & External Affairs, said: “We, in concert with others in the sector, have long argued that the tax regime in the UK has favoured the burning of fossil fuels, so this is a particularly welcome measure. We also understand that all materials and services are included.
“This level of simplicity is essential for the installer community, many of which are micro-businesses that struggle with overly complex tax rules.”
“Setting the intervention for five years gives future visibility which will encourage investment in both skills and capacity, by the whole sector in the UK. When taken in conjunction with the new Boiler Upgrade Scheme, which also starts on 1st April, domestic scale heat pumps are going to be that much more affordable for both homeowners and landlords. “
“Capital costs are only one half of the equation, operational costs for heat pumps do still have to be addressed through the rebalancing of taxation on electricity and fossil fuels that reflects the relative carbon and other emissions.
“But for today, the VAT outcome is to be celebrated and the Government commended for the message that this sends to consumers and to the industry alike.”
The Heat Pump Association said that the Chancellor's decision will complement other financial incentives, such as the Boiler Upgrade Scheme which will soon see £5,000 grants on heat pump technology introduced. However, it argues that more must be done to boost the heat pump market, including the removal of environmental levies and further upfront support, such as low interest loans.
Phil Hurley, Chair of the Heat Pump Association, said: “The Spring Statement comes with great news for the heat pump industry and households today. The HPA has been working hard behind the scenes calling for financial incentives to tackle the barriers to heat pump uptake, and the decision to cut VAT from 5% to zero on energy-saving measures is an important step forward.
"While this decision alone will not be enough to enable all households to access technologies such as heat pumps, we are confident that it will play a role in helping to accelerate the switch to low carbon heat. But we must remember that more steps still need to be taken to support the rollout of heat pumps, including the removal of illogical environmental levies on electricity.”
Derek Horrocks, Chair of the National Insulation Association, added: “Insulating homes is essential to the success of the Government’s plans to reduce carbon emissions in line with climate objectives, but we know that measures are not being installed on the scale required to reduce energy demand in homes and tackle the cost-of-living crisis.
"The VAT cut on energy efficiency introduced by the Chancellor today could make a strong contribution to tackling the cost barrier to energy efficiency improvements in the UK, but the NIA welcomes the decision with caution that other financial support will be needed for homes where this incentive is not the right solution.
"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 is great that the VAT cut will apply to an array of solutions.”
Commenting on the government's plans to review the Apprenticeship Levy, Jamie Jeffries, CEO of Access Training UK, said: “We welcome the news that the government will be reviewing the Apprenticeship Levy. We desperately need to encourage more people to take a vocational route into training, and this starts by making sure training schemes are properly funded.
“The skills shortage has been a disaster brewing for decades. It’s estimated that the UK needs to recruit 217,000 new workers by 2025 in construction alone, just to keep up with current demand.
“Just 18% of young people hold a vocational qualification. If we are to encourage more people into vocational training we need to ensure that the Apprenticeship Levy remains focused on the training and development of those looking to enter work, and does not become a tool to offer businesses wage subsidies.”
Carl Arntzen, CEO of Worcester Bosch, said: “We welcome the Chancellor’s removal of VAT on heat pumps, solar panels and other energy-efficiency measures. We feel that this will support the needed transition of UK homes towards a net zero future.
"One of the main barriers for consumers looking to install greener heating technology at home is the cost, so the savings this tax relief could bring may help counteract this, while contributing to an increased uptake of these types of measures.
"As the more specific details start to appear following today’s initial Spring Statement, it will be interesting to see whether the 5% tax relief is for the products and materials, or, as we would hope, applies to the total cost of installation, as around 60% of the cost of a heat pump installation is on ancillaries and labour.”
This article was updated on 28 March to include further reactions.
