Taxation: VAT on Retrofitting Buildings

Thursday 25th July 2013 Lords Chamber

Question

11:14

Asked By

[Lord Empey]

To ask Her Majesty’s Government whether they have plans to reduce VAT on the retrofitting of existing buildings to encourage energy saving and job creation.

[Lord Newby]

My Lords, a reduced VAT rate of 5% already applies to the installation of various energy-saving materials, including insulation materials, in residential properties. There are many instances where people incur expenditure in a way that helps to reduce energy use, but given the current fiscal pressures, it is not possible to relieve such expenditure from tax.

[Lord Empey]

My Lords, as suppressing the demand for energy and encouraging job creation are two of the Government’s key objectives, is there not a strong case for reducing VAT more generally on the retrofitting of buildings as a simple and quick way of ensuring that both these objectives are achieved at minimal cost to the Treasury? Will the Minister not take a leaf out of the Americans’ book and look at this again, as it has been a successful policy across the Atlantic?

[Lord Newby]

My Lords, the Government recognise that energy efficiency has a major role to play in meeting carbon reduction objectives while reducing energy costs for consumers, and the process of doing that can and does generate jobs. That is why we have introduced the Green Deal, which, as noble Lords will be aware, encourages home energy-efficiency improvements, paid for by savings on energy bills. The energy company obligation will work alongside the Green Deal, focusing on hard-to-treat homes and low-income households.

[Lord Marlesford]

My Lords, does the Minister agree that the noble Lord’s reference to the United States is not very relevant because the United States does not have VAT? Indeed, it would do much better if it did have it. Furthermore, does the Minister agree that the Government should be very cautious in extending multi-rate VAT because all sorts of anomalies and complications can follow?

[Lord Newby]

My Lords, I have a great deal of sympathy with the noble Lord because my first job as a new employee was working on VAT. It was very complicated when it was introduced; it has got more complicated since then and should not be allowed to get any more so.

[Lord Howarth of Newport]

My Lords, is it not irrational to have a VAT regime that incentivises demolition and new build and penalises alteration and refurbishment? Is that not just as perverse in relation to heritage conservation as it is to energy saving? Will the Government negotiate with real determination in Brussels to secure a sensible regime?

[Lord Newby]

As the noble Lord said, the VAT regime is an EU regime. Any attempt to change it will require unanimity as it is a tax measure. Opening up the regime would, in my view, open up a Pandora’s box, and I do not recommend that as a policy approach.

[Lord Redesdale]

My Lords, Britain has one of the oldest building stocks in Europe. Does the Minister not agree that the value of retrofitting old buildings is incredibly important? I point to the enormous success of the retrofitting of the Palace of Westminster and congratulate the efforts by the staff to make great savings. However, there are particular problems with the Palace of Westminster. It is a grade 1 listed building, and there is quite a cost burden on retrofitting listed buildings. Can the Government consider a different, deferential rate for all listed buildings because of the cost implication of retrofitting listed buildings?

[Lord Newby]

My Lords, I think that we are all aware of the complications of trying to make a building such as this energy efficient, and I pay tribute to the work being done in that respect. Sadly, under EU legislation, the scope for a reduced rate of VAT on non-residential royal palaces is, I am afraid, non-existent. However, I commend, and refer the noble Lord to, the work that the National Trust is doing on green energy projects—for example, installing a biomass boiler system at Chirk Castle, which just shows what can be done. I remind the noble Lord that the Green Deal will apply to homes that are listed buildings.

[Lord Barnett]

My Lords, is the noble Lord’s strong support for energy saving why his right honourable friend the Chancellor is so strongly supporting shale gas, especially in Lancashire, where many jobs will be created? Lancashire will be very grateful for the support of the Chancellor.

[Lord Newby]

Shale gas is a significant potential new source of energy. As the noble Lord will be aware, we announced a series of measures in the spending review that will facilitate the development of shale gas. We think that it can play an important part in our future energy mix. Of course, the development of it will generate a number of jobs.

[Lord McFall of Alcluith]

In the discussion the other day with representatives of the KfW Bank in Germany, at which the Minister was present, he will have heard them say that one of the most successful schemes the bank has been involved in is a scheme for energy saving and job creation in Germany. Does he not think that there is a lesson here for this country, at a time when the divide between north and south is getting greater, so that we can help rebalance the economy and provide jobs at a local level, thereby having the twin objectives of ensuring economic prosperity and providing insulation for homes for the future?

[Lord Newby]

I completely agree with the noble Lord. Of course, that is why we set up the Green Investment Bank, which is already proving its worth, not only in putting money into green projects on its own behalf but getting a significant multiple of private sector investment coming in to support that government pump-priming.

[The Lord Bishop of Chester]

My Lords, the Minister has twice referred to the Green Deal as the Government’s policy response to the issue. Can he tell the House how the take-up of the Green Deal is progressing in relation to the hopes that were expressed?

[Lord Newby]

My Lords, the Green Deal is a new project with a 20-year life ahead of it. Up to the end of June, some 44,479 assessments had been made and 3,500 installations had received cashback payments. In addition, 78% of people with a Green Deal advice report said that they had, were getting or would get energy-saving measures installed, which demonstrates a very high level of consumer interest.