21 MARCH 2000 BUDGET- GOOD NEWS FOR ALL HOUSEHOLDERS- VAT SLASHED ON ENERGY

A cut in the rate of VAT on energy saving materials will make it cheaper for all people to insulate their homes, the Chancellor announced today. The cut comes as part of a social policy aimed at reducing winter deaths and ill health caused by cold homes and will make an important contribution to encouraging energy efficiency in the domestic sector.

The cut, from 17.5 per cent to 5 per cent, will apply to all insulation, draught stripping, hot water and central heating system controls that people pay to have fitted in their homes. It will also apply to the installation of solar panels, which can make an important contribution to energy saving.

Pensioners will also benefit from safer and warmer homes with a cut in VAT to 5 per cent for the installation of central heating and home security systems funded from new Government grants.

DETAILS

Reduced VAT rate for the installation of energy saving materials in all homes

From 1 April, VAT on the installation of energy saving materials (including solar panels) in all homes will be 5%. This is the lowest VAT rate allowed under our EU agreements.

Reduced VAT rate for grant funded central heating systems and home security goods

In a joined up initiative, Customs, DETR and the Home Office have been working together to ensure a better deal for pensioners and the less well-off. The current reduced VAT rate of 5% for the installation of energy saving materials will be extended to cover the installation, maintenance and repair of central heating systems and the installation of home security goods in the homes of less well-off pensioners; and the installation of heating measures in the homes of the less well-off, where these are funded by Government grants.

Together, these measures will cost approximately UK Pounds 35 million in 2000/01.

NOTES FOR EDITORS

1. The UK has a disproportionately high level of winter deaths compared to other countries of continental Europe and Scandinavia. Research shows that cold homes are linked to winter deaths and ill health. The Government is, therefore, widening the reduced VAT rate to cover installation of energy saving materials in all homes in order to reap the widest benefit in health terms.

2. Installation of “energy saving materials” in all homes will include:- insulation for walls, floors, ceilings, roofs or lofts or for plumbing fittings; draught stripping for windows and doors; hot water and central heating system controls; and solar panels.

3. On 1 July 1998, the Government introduced a reduced VAT rate of 5% for the installation of energy saving materials funded by a government grant scheme (such as the Home Energy Efficiency System, or HEES). This reduced rate for installations in the homes of pensioners and the less well off is being extended to keep it in line with the new government grant scheme – New HEES. New HEES will fund the installation of central heating in the homes of pensioners, and the installation of heating system measures in the homes of the less well off.

4. In order to underpin the Home Office initiative on making pensioners’ homes more secure, the reduced rate will also apply to home security goods installed at the same time as central heating in the homes of less well-off pensioners. Home security goods include locks and bolts for windows, locks bolts and security chains for doors, spy holes and smoke alarms.

5. Grant funded installations of “heating system measures” include:- gas room heaters with thermostatic controls; gas fires with back boilers; electric storage heaters; closed solid fuel fire cassettes; electric dual immersion water heaters with foam insulated water tanks; and gas boilers and radiators.

6. The reduced rate does not apply to purchases for DIY installation.

7. Details for businesses are in Budget Notice 39/2000. This is available from Customs and Excise Business Advice Centres and from the Customs and Excise Internet site.