Good news on VAT cut for heat pumps, but frustration on Boiler Upgrade Scheme

Chancellor of the Exchequer Rishi Sunak announced that VAT on energy-saving technology like Solar and Heat Pumps will be reduced from 5% to 0%.  Mark Wilkins, Technologies and Training Director at Vaillant, gives his view:

Following the Chancellor’s spring statement this week Vaillant welcomes the VAT cut on heat pumps and looks forward to understanding the detail of this initiative which helps address the consumer barriers to the low carbon technology.

Consumers are one of the pivotal pieces of the jigsaw puzzle for achieving decarbonisation in the UK so, any mechanism put in place to increase consumer uptake of mass heat pump deployment, is a positive step towards achieving the UK targets.

However, we are disappointed in the most recent announcement regarding the Boiler Upgrade Scheme (BUS). The scheme was initially announced in the Government’s Heat and Building Strategy in October to help incentivise the installation of heat pumps once the Renewable Heat Incentive (RHI) closes on 31 March. The Government is providing £450 million to fund the BUS over three years which will be used to provide grants of up to £6000 towards the upfront cost of the heat pump, a significant improvement to the homeowner on the RHI which was a repayment scheme following the install.

The downside to the BUS is that it complicates the installer process and provides a hiatus of up to seven weeks, between the RHI closing on the 31 March and applications for BUS vouchers opening on 23 May. Whilst installations commissioned on or after the 1 April may be eligible for the BUS, this almost two month delay has the potential to be hugely damaging within the heating industry, especially to our installers, many of which are SMEs who do not have the available cash flow to wait weeks for reimbursement via an issued voucher.

In the worst case, the delay to the opening of the BUS may stall installers’ work and affect their livelihoods. Additionally, there is no guarantee that the voucher will be retrospectively granted, this could account for up to £6000 per job in the seven week period. If an application is declined it creates an extremely difficult relationship between homeowner and installer. With the power of consumers on social media, this may be hugely damaging to heat pump installer businesses and may damage their prospects of future work.

We urge Government to review the timeline for the BUS by extending the RHI until the BUS is fully operational, assuring confidence in the scheme and minimising interruption to installers’ work.