UK households face rush to find green energy installer to beat April VAT hike
UK households planning to invest in green energy upgrades risk a nationwide rush to find an installer or face hundreds of pounds in unexpected costs unless the government reverses its looming VAT increase.
Ministers are under growing pressure to reverse plans to scrap the 5% VAT exemption on home heat pumps, solar panels and batteries from 1 April. This change could add up to £1,530 to the cost of a smart home energy system amid record demand for fossil fuel alternatives.
Industry groups have warned that the VAT cliff-edge could trigger a surge in demand for installations before the deadline. This would create a 'feast and famine' upheaval for the country’s nascent network of home energy installers after years of tepid interest from households.
Demand for home energy upgrades has reached record highs across the UK since the Middle East war caused gas market prices to double across Europe. This has pushed home energy bills to near four-year highs, driving families to seek alternatives.
Government cuts grants
The chancellor’s budget statement has signalled plans to shrink the total amount for heat pump grants over the coming financial year. At the same time, the government is cutting extra grant funding offered to heating oil users while reinstating VAT on clean energy tech.
The savings to government must be weighed against the risk of disrupting consumers, undermining industry confidence and stalling an emerging market.
The trade association is seeking clarity from the government over how the reintroduction of VAT will be applied. This is so households can avoid an unexpected bill if their pre-booked installation is delayed until after the VAT exemption deadline.
Criticism of policy
The decision to remove the VAT relief has been criticised as 'inconsistent' with the government’s focus on helping to protect bill payers from the surging cost of fossil fuels. It has also been labelled 'total policy madness' after ministers cut VAT on electricity bills to encourage electric alternatives.
A household planning to fit an air-source heat pump, a 4KW solar installation, and a home battery would face an extra £1,530 cost unless it is able to undertake the work before April.
It is total policy madness for the government to strip VAT from electricity bills with one hand, only to slap it straight back on to heat pumps with the other. They are telling families to switch to clean electricity, while simultaneously punishing them with a £1,530 tax hike for buying the very kit needed to do so.
Industry reaction
Energy industry leaders fear the rise will undermine government schemes to support the industry, which includes the launch of state-backed low-interest loans. The decision to raise VAT would raise the cost of the loans scheme that has only just been launched.
With domestic electricity bills now zero-rated until July next year, saving energy will be taxed more heavily than consuming it – a perverse incentive. We will be urging the government to reverse course.
A Department for Energy Security and Net Zero spokesperson said more and more families are switching to clean energy technology. The spokesperson noted record numbers of people applying for heat pumps and receiving grants through the Boiler Upgrade Scheme in September.
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