Tax reform takes centre stage

As key political figures meet at the G7 this month to discuss tackling climate change, among other global challenges, there is growing support for a green recovery from the pandemic. Investment in green sectors, such as the domestic energy efficiency retrofit market, present golden opportunities for Governments wanting to create the new jobs and apprenticeships that are urgently needed.

Without reducing the energy demand and carbon emissions from our homes, it will not be possible for the UK Government to keep to their pledge of achieving net zero carbon emissions by 2050 and becoming a world leader in the low carbon economy.

Against the backdrop of the Chancellor of the Exchequer proposing significant tax reform at the G7, the Federation of Master Builders (FMB) jointly held a roundtable with the Royal Institution of Chartered Surveyors (RICS) to discuss what fiscal policy is needed to help boost the green retrofit market. Bringing together representatives from the construction industry and business community, Parliamentarians and civil servants, a range of measures were discussed.

Cut the VAT to boost retrofit

The FMB and RICS are supporting the introduction of a temporary five year cut in VAT to 5% on the labour element of repair, maintenance and improvement works, including its associated professional services. Modelling from CBI Economics shows that this VAT cut would create a £51 billion economic stimulus, contribute £24.8 billion Gross Value Added to the economy, and unlock almost 345,000 jobs in construction and beyond. All by the end of the five-year period. A cut in VAT would not only create additional funds for households to spend on green improvements, in addition to their more typical home improvement works, but it would also encourage the conservation of, and investment in, heritage and traditional buildings.

Reforming Stamp Duty Land Tax

The UK Green Building Council recently published a report on how reforming the Stamp Duty Land Tax incentive would contribute to action on carbon emissions. Given that householders’ behaviour tends to be influenced by incentives, modest changes to Stamp Duty that make more efficient properties cheaper to buy, and those with a lower EPC rating more expensive, would help create the market for retrofit.

However, Stamp Duty incentives alone will not influence the behaviour of households that are living in the same property for many years. The idea of an annual tax or reforms to the council tax system were raised at the roundtable.

Helping businesses to decarbonise

Alongside households, the challenge for businesses to decarbonise must also be considered. Kevin Hollinrake MP, Vice Chair of the All-Party Parliamentary Group for Fair Business Banking, is highlighting how SMEs must be supported in the transition to net zero, and how this can be achieved by increasing the diversity of lenders. By contrast, larger asset owners must also be encouraged to do their bit by recognising the value of greener assets.

The Green Finance Institute and the Bankers for Net Zero campaign, a Workstream of the APPG, are working closely together. They are developing ideas for additional policies that support retrofit including linking interest rates on loans to sustainability, a replacement to the Coronavirus Business Interruption Loan Scheme (CBILS) with a green fund that helps small businesses, and finally improved communication on the availability of finance to increase demand.

Calling for action on climate change ahead of the Spending Review

The roundtable’s discussion of fiscal policy for net zero helped set the scene for the wide range of measures that will be needed to effectively stimulate the energy efficiency retrofit sector across a range of clients. After years of market failure, and cancelled Government schemes, achieving the right balance of incentives and regulation will help create a fair transition that supports all households and businesses.

The Government must use the Spending Review to incorporate the many policy ideas supported by industry, just some of which are listed above, and help support meaningful steps towards decarbonising Britain’s homes.