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Industry renews call for VAT cut on refurbs as public shuns Green Deal

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Tax cut would boost energy-efficiency and help small firms, say architects

Architects and leading construction industry voices have renewed calls on the government to provide VAT relief for refurbishment projects as a potential replacement for the failing Green Deal.

Only 626 of the UK’s 25 million homeowners have signed up for retrofit loan schemes since the launch of the government’s flagship energy programme last January.

Many in the sector believe a long-campaigned-for reduction in VAT on all renovation and repair work from 20 per cent to 5 per cent would be more effective in encouraging homeowners to take on energy efficiency projects.

Mike Brown, chair of the Institute of Historic Building Conservation, who is part of a delegation presenting research about a potential VAT reduction to MPs in March, said: ‘With the apparent failure of the Green Deal strategy to prompt capital investment in our built stock, perhaps government can accept that supporting building maintenance through VAT relief is one of the best ways to keep our older building stock environmentally friendly, and their residents and owners comfortable.

‘The simple fact is that VAT is too high to be tax-efficient and is a brake on growth.’

Jane Duncan, the RIBA’s equality and diversity champion, added: ‘There was at best scepticism among small architectural practices when the Green Deal was first discussed.

‘I would heartily endorse proposals to reduce VAT on domestic improvement works, many of which now do not require planning consent and could be implemented quickly. Small local architects’ practices would be on hand to assist.’

Carl Turner, director of Carl Turner Architects, commented: ‘The Green Deal is too complicated, and involves loans, interest and so forth. For architects, there is no financial incentive to take on what is dull and repetitive work, no matter how good the overall cause.

‘If architects had been put at the heart of the scheme as independent professionals, things might have been different.’

Steven Moon, of Northern Ireland-based small practice McGarry-Moon Architects, said a reduction in VAT would make clients more likely to refurbish buildings, providing more work for practices. He said: ‘It would encourage people to improve their property; the current 20 per cent rate scares people off. A reduction in VAT for refurbishment projects would at least make people consider keeping their existing property.’

Marion Baeli, associate at Paul Davis and Partners, agreed. She said: ‘A reduction in VAT for retrofit projects would absolutely provide more work for architects. VAT is a major issue in retrofit projects on small houses, which, on top of fees often makes it uneconomical.’

Further comments

Robin Nicholson, Cullinan Studio

‘Removing VAT on retrofit or at least balancing it up with new-build at say 5 per cent across the piste is essential if we are to stop pulling down perfectly sound buildings and putting up new ones when there is just not the resource globally to go on behaving like that.

‘For 20 years the industry (especially the contractors) has been making the case that dropping the VAT to say 5 per cent would pay for itself by bringing in the cash-only cowboys.’

Sofie Pelsmakers, doctoral researcher at UCL’s Energy Institute

‘Given the low number of Green Deal installations (around 600 completed installations, with only another 1000 in the pipeline) in just a year since it launched, one could say the Green Deal has failed. However, given the high interest rates associated with the loan, the fact it is a new scheme to industry with significant bureaucracy and complexity on top of how long it takes to organise and undertake works on site, this is not entirely surprising.

‘Also, these numbers only reflect Green Deals taken out with a finance plan, i.e. occupants who are borrowing money and repaying it through their electricity bill. I suspect many people who, like myself, have had Green Deal works undertaken without the loan, will fall through the statistics gap of the Green Deal. For example, we had the first assessment in March 2013, and it took months to find and get installers to quote for the works who also could draw on ECO funding. Due to the ECO subsidy offered, we could fund the works via other means and no longer needed a Green Deal loan. While we still had the installation done under the Green Deal, it won’t show up as a Green Deal. The low Green Deal completed numbers are hence likely to be deceptively low, and installations are presumably instead included under the ECO scheme, if (like our solid wall insulation) the works are part funded this way. So far, there have been over 470,000 ECO part-funded installations, a much greater number than the people signing up for the Green Deal, though ECO-funded installations are still falling short of previous government schemes. 

As an architect, it is frustrating that it is not possible to adapt solutions to suit each property best

‘Clearly the high interest rate (7 per cent) is off-putting to many. The negative media exposure it received has given ECO and the Green Deal a bad name and may put people off starting or proceeding. Equally the government’s knee-jerk response to bad media means that there is uncertainty in industry about what may happen next. Having gone through most of the process, the complexity and bureaucracy is astonishingly stifling. As an architect, it is frustrating that it is not possible to adapt systems and solutions to suit each property best. To illustrate this: each Green Deal approved system has standard details, whether they work for a given property or not. In our case, the solution for window reveals doesn’t work and so we have none rather than come up with other solutions; on a part of the wall we would have benefited from more than the 100 mm system insulation, but this is not possible as industry has designed and gained Green Deal approval for systems which meet the current building regulation requirements for U-values (which attracts ECO funding), not more or less. This really limits consumer options. The separation of certain trades - i.e. installers who can install wall insulation but not flat roof insulation or anything to do with waterproofing under the Green Deal, means that you may end up with odd and less robust details; and the consumer may have to get two Green Deal installer in and co-ordinate the separate works themselves, despite the fact that of course both measures are Green Deal measures. We decided to have one installation done under the Green Deal to benefit from the ECO-funding and the other part to be done by the same firm, but outside the Green Deal as they had not gone through the Green Deal approved process for this. For individuals, getting access to ECO under the Green deal still seems to be very limited and hard to find. 

VAT relief should also only apply if certain fabric standards are met

‘VAT on insulation is at present just 5 per cent, but this is still 5 per cent more than when building anew and this discrepancy is long overdue. I would like to see VAT relief for retrofit introduced and on a sliding scale depending on how well the building fabric performs for new-build. Perhaps to avoid purely cosmetic changes in retrofit, relief should also only apply if certain fabric standards are met, while acknowledging the challenges of retrofit and that in some cases higher standards may be detrimental to the fabric. 

‘There are over 25 million existing buildings, most of which will still be standing in the next 50 years. The majority of these buildings do not provide occupant thermal comfort; lead to high energy bills and use up vast amounts of (often imported) fossil fuels to keep people warm, leading to high associated carbon emissions and pollution. The government needs to get real and needs to urgently reward energy efficiency, i.e. the energy not used, just like it rewards clean energy produced (such as FITs and RHI). The best way to use energy, is after all, to not need it in the first place! 

‘At present many retrofits - apart from for the wealthy - do not involve architects. A VAT reduction for retrofit projects may lead to more retrofits, but won’t necessarily benefit architects, the environment or lower energy bills unless high fabric renovation standards are met, which would also require specialist architectural input.’

Steven Moon, McGarry-Moon Architects

‘The Green Deal has failed as we have had no benefit in Northern Ireland from it. The key problem of the Green Deal is that VAT still applies to most of the works.’

‘VAT should be reduced to 0 or 5 per cent for extension and renovations; this would encourage people to improve their property as the current 20 per cent scares people off.

‘A reduction in VAT for refurbishment projects would at least make people consider keeping the existing property. We have been appointed for a project recently where the client had gone down the route with a previous architect to extend and renovate and due to tender prices coming in way over budget including VAT he decided it would be more cost effective to redesign for a new build and knock-down the existing house as VAT is 0 per cent. The decision was based purely on having to pay 20 per cent VAT. Projects in the Republic of Ireland for new build and extension have the same rate of 13.5 per cent VAT which means that choice does not happen as much.’

Marion Baeli, associate, Paul Davis and Partners

‘The Green Deal has failed due to poor take-up. It is too expensive and far too complex.

The Green Deal is too expensive and far too complex

‘VAT should be no more than 5 per cent on retrofits. In France any materials or equipment linked to thermal improvement of a house are subject to tax rebates, for example 30 per cent off the price of a new efficient boiler. 

‘To improve the energy efficiency of the UK’s existing stock the government needs to invest, create low interest rate loans (or even 0 per cent - why not!) through a very simple contract.

‘A reduction in VAT for retrofit projects would absolutely provide more work for architects. VAT is a major issue in small houses retrofit projects which on top of fees often make it not economical at all.’

Fionn Stevenson, head of Sheffield School of Architecture

‘To date, the uptake on Green Deal has been very limited, far more limited than other initiatives by the energy suppliers such as retrofitting free insulation. Housing developers have also been reluctant to engage from the client side as they have found it difficult to identify the financial viability of the scheme.

‘There is no guarantee that the rate of repayment of the loan will be matched by the energy savings made financially - this will be particularly difficult if energy becomes cheaper to generate (ie with fracking, in the short term, despite all its environmental difficulties). The Green Deal is like a chocolate box where you pick your favourite chocolates, without paying attention to the overall diet of the home! This is a potential disaster in terms of building physics. Unless the home is evaluated in the round for effects of moisture migration due to individual measures, we could end up building in mould problems rather than solving them through thoughtless application of non-breathing insulation strategies on existing buildings. It is also vital that every effort is made to reduce the energy demand on homes before engaging with supply side measures.

‘An energy efficiency programme supported by VAT relief would provide a much better incentive for industry.

‘The government should provide genuine investment rather than passing the buck to the consumer. This means leveraging funding for retrofit measures through a new carbon tax (which we desperately need to address climate change mitigation in a wholesale manner) or some other form of energy tax levy. At the moment, this government seems to be dismantling any genuine commitment to green investment as fast as it can, through moving the goal posts on zero carbon commitments and downgrading the need for renewable energy. Overall, far greater investment is needed than the loan currently on offer, particularly for hard to heat properties.’

Tom Dollard, head of sustainability, Pollard Thomas Edwards Architects

‘The first year [of the Green Deal] has not been a success. The uptake has been far less than anticipated, but it’s probably a bit early to say it has failed outright because in some cases, it does stack up. If you are planning on making significant improvements to your home anyway, then the green deal with ECO cash-back can save you money when compared with paying for the measures yourself. However the vast majority of assessments are not being delivered, showing that the majority of cases, the deal is not attractive to people.  It has been claimed that some people are financing the measures themselves with 0 per cent interest rate credit cards, to avoid green deal high interest rates and signing up for repayments for 10-25 years. 

‘The main problem is the lack of incentive. Even the cash-back offered as part of the scheme has not been enough to persuade most people to take out this relatively high interest loan. There is also the problem of detail and the performance gap. The Green Deal predictions do not emphasise quality of design or workmanship. For example, there is considerable difference in energy performance of carefully detailed, well installed window, when compared to a poorly installed window. In short, the energy performance of as-built products is often far worse than design predictions, and variation in design and workmanship means the green deal model can differ massively to actual savings.   

Cutting VAT to 5 per cent on home improvements would be a far simpler solution

‘Cutting VAT to 5 per cent on home improvements would be a far simpler solution [than the Green Deal] to improve energy efficiency. There are several added benefits to this policy, and it has no hassle of assessments or high interest loans. 

‘The government should increase incentives for early adopters of the green deal, either with reduced interest rates or increased cash back. Incentivise large scale estate regeneration including increased grants to Housing Associations, landlords and developers who improve their existing stock to help tenants. Cut VAT to 5 per cent on all home improvement work.

‘If the VAT was reduced for refurbishment projects there would be a marginal increase in retrofit work for architects, but the main increase in work/sales would be for small building contractors and suppliers.’

John Alker, director of policy and communications, UK Green Building Council

‘It’s no secret that the Green Deal has got off to a disappointingly slow start, with early IT glitches and over complexity discouraging consumers from taking up the scheme.

The Green Deal cannot be allowed to fail

‘But the policy cannot be allowed to fail. Extending VAT relief would help to reduce the cost of energy efficiency measures for some householders and although this wouldn’t create an immediate spike in demand, could be introduced alongside strong structural incentives to increase uptake.’

Carl Turner, Carl Turner Architects

‘I don’t know of any architects ourselves included who have been involved with the Green Deal process in any way. I also don’t know anyone who has even had an assessment done. 

‘The Green Deal is too complicated, involves loans interest and so forth.It’s aimed really at businesses manufacturing / installing energy efficiency products, there is no mention of design quality or impact and hard to see how architects could ever work with the scheme as an effective business proposition. For architects there is no financial incentive to take on what is let’s be honest dull and repetitive work, no matter how good the overall cause. If architects had been put at the heart of the scheme as independent professionals things may have been different. 

If architects had been put at the heart of the scheme things may have been different

‘VAT relief for refurbs could be a much more straightforward system, which surely would he better. I looked through the current paperwork which is too complex and even as a built environment professional was left confused; I just switched off!

‘It would be better if whole areas of housing were tackled in one go, much like when you see a tower block being returned; it would make no sense to do individual apartments and it makes no sense in a terrace for instance tackling double glazing in one home, loft insulation in another.

‘We need a 25 to 50 year program funded by government grants. It’s a long haul project where the benefits wouldn’t be realised for at least a generation. Hard to see how any government would have the courage to do it.

‘I think architects need to be funded and trained to take up the challenge if they are to be anything but the disinterested bystanders they are now.’

Andrew Goodman, Good Architecture

‘Has the Green Deal failed? Emphatically, yes.

‘The Green Deal has not been properly thought through, possibly because those working on it lacked relevant knowledge and experience.

‘I believe that some German cities have financially incentivized the construction of new and retrofit energy efficient buildings, particularly using the Passivhaus standard as the benchmark. VAT relief alone may not be sufficient.

‘Looking at the government’s recent decisions and pronouncements, it just doesn’t get the need to improve energy consumption in new or existing buildings. It doesn’t seem to consider that it represents positive economic activity or opportunity, and setting any targets or standards is seen as ‘regulatory burden’. It needs to find its caring side if it is to make any contribution to improving the energy efficiency of existing stock.

‘I assume like many architects, we get involved when the retrofit project also involves design of building alterations. I’m not sure that VAT reduction on energy efficiency projects alone would provide more work for architects.  

‘At the moment there is more expertise in how to effectively reduce energy use in buildings within the architect community, which does get applied in retrofit projects. At some point in the future, it may be more appropriate if builders, insulation fitters, replacement window companies, airtightness contractors, etc. could be relied upon to give best advice and effectively implement works.’


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Readers' comments (1)

  • ian Hogarth Hogarth architects
    we are regularly faced with the nonsense of demolishing perfectly good buildings in order for client's to take advantage of zero vat on new build. There is a vast supply of existing buildings ripe for upgrading , but 20% vat is a major deterrent.
    Zero percent for building on farmland makes no sense,and the only conclusion must be the influence of the major housebuilder's lobbyists, as against millions of unrepresented owner occupiers.
    After years of vat relief being applied to alterations rather than repairs to listed buildings (Doh!) the government acted by moving all of it. Roll on twenty years and see the damage to our architectural heritage.

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