March 16, 2022

Energy Price Crisis: Why Zero-VAT Retrofitting Could Be the Green Answer

If there were ever such a thing as an upward spiral, energy prices in 2022 are in one.

The average UK home could see energy bills hit £3,000 a year from April - just a few weeks away at the time of writing – when Ofgem’s price cap is increased by 54%.

Domestic energy poverty is now a very real prospect for many families,whilst businesses - still reeling from the impact of Covid - are seeing energy costs pull the rug from under the recovery.

But there are two ways to manage energy costs, and battling wholesale prices is only one of them. The other, quite simply, is to reduce overall energy consumption by making homes and businesses more energy-efficient.

Less energy used, less cost incurred by households (up to £1,000 a year less, according to some reports), less exposure to the risks of fluctuating energy supply and pricing – plus, of course,environmental impact is also mitigated.

And if you make it much cheaper than it currently is to carry out the work to reduce energy consumption, then, on balance, take-up is likely to be much higher.

But it’s here that the Government, according to several industry bodies, including the Association for Decentralised Energy (ADE), and the MCS Charitable Foundation, is now missing a huge trick…

Retrofit at zero VAT: save money, energy, and face

The basic premise is that by reducing the VAT rate on energy-friendly retrofitting (whether this be insulation, triple glazing, or other energy-saving measures) from 20% to zero, the Government would stimulate demand for it.

If this sounds a little simplistic, it’s only when you examine the surrounding context that you realise how ripe the circumstances potentially are for this kind of intervention, and how effective an outcome the approach could deliver.

Consider this: some 70% of owned homes in the UK are not eligible for any of the Government’s other current grant schemes for retrofitting – so manyof them will be looking for an alternative.

Now overlay that onto the fact that, at the same time, 54% of the UK’s housing stock fails to meet basic Energy Performance Certificate (EPC) levels,and there’s basically an enormous retrofit opportunity out there - but there’s also a yawning, three-way gap between energy efficiency, environmental sustainability,and affordability.

And until the UK finds a solution that combines all three, our country will continue to trail, as it already does, behind the average home energy efficiency – and environmental footprint – of countries like France and Germany.

In short, if it doesn’t successfully tackle the retrofit challenge, the Government could well face the triple dilemma of domestic fuel poverty, failure to meet its own carbon emissions and sustainability targets, and a poor environmental showing on the post-Brexit EU stage.

Liquidity: a hurdle to be overcome

Of course, no scheme is without its flaws, and with retrofit projects the general lack of liquidity on the part of householders (the median net financial wealth of an individual in the UK is just £8,000) - plus the fact that incomes are also being squeezed by food prices, and interest rates on borrowing are rising – would mean a slower burn than we’d ideally prefer.

But other countries – even those much less wealthy than the UK - are upping the ante, which demonstrates that there is both environmental and economic faith in this approach, and we can learn from them both in terms of the kinds of incentives we apply and their financial scope.

Ireland’s recent National Retrofit Plan, as just one example, now offers funding for up to 50% of most deep retrofitting costs, with an enhanced 80% rate for attics and cavity wall insulation.

 Energy expertise: what makes retrofit work

In summary, it seems realisation is finally dawning that enabling the public to use less of something ultimately shields them from any crisis involving it.

That said, energy-efficient retrofitting is not, in reality, quite as simple as changing windows, lagging pipes, or even installing solar panels or heat pumps.

In fact, it’s possible for some energy efficiency measures to effectively fight with each other, pushing consumption (and cost) in the wrong direction,leaving you out of pocket (and, potentially, the Government with egg on its face).

So, how do you know whether retrofitting will work for you or not?

There’s only one solution to that: ask experts who can model how energy behaves in your specific building, not a fitter who gets paid whether the retrofit saves you energy and money or not.

To find out more about how we can support you with any aspect of retrofitting, please give us a call on 01992 552 111.

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