“Homeowners who have solar panels, heat pumps and insulation installed will no longer pay 5 per cent VAT – they will pay zero,” the chancellor said – claiming families who have solar panels installed could see tax savings worth £1,000.
The move has been welcomed by experts and the renewable industry who have long called for such measures as a route to lowering demand for gas and reducing household bills.
Mr Sunak blamed the EU for previously blocking tax cuts on the installation of home energy saving measures, and claimed it was "thanks to Brexit", the government could now knock off the VAT.
The speech did not make clear whether the tax relief applied only to the purchases of the materials and products themselves, or also to the installation of them, which is also a major expense for householders.
Wind turbines and hydroelectric projects will also be eligible for the zero per cent rate of VAT, under the plans.
"We will also reverse the EU’s decision to take wind and water turbines out of scope and zero rate them as well," he said.
The chancellor also announced a 5p cut per litre to fuel duty until March 2023, saying the cut was only the second time in 20 years the tax had been cut and that it represents the “biggest cut to fuel duty rates ever”, worth over £5bn.
The chancellor said Britain’s economy is forecast to grow 3.8 per cent in 2022, citing the latest reduced projections from the Office for Budget Responsibility (OBR).
Northern Ireland will not get the VAT cut on green home improvements because of the protocol, Mr Sunak said – but promised the province would get equivalent funding.
Responding to Mr Sunak’s statement, Labour’s shadow chancellor Rachel Reeves told the Commons the measures announced were not enough to reverse the worsening cost of living crisis, and failed to "provide real help to families".
She said: "Today was the day that the Chancellor could have put a windfall tax on oil and gas companies to provide real help to families, but he didn’t.
"Inflation is at its highest level for 30 years and rising. Energy prices at record highs. People are worried sick.
"For all his words, it is clear that the Chancellor does not understand the scale of the challenge. He talks about providing security for working families, but his choices are making the cost-of-living crisis worse, not better."
Campaigners welcomed the VAT cuts to green home improvements, but warned the government’s new policies must "only be the start" of further measures to get the UK off its gas dependency.
Dr Doug Parr, policy director at Greenpeace UK said: "Right now millions of people are paying through the nose to heat homes which are so poorly insulated the warmth shoots right outside.
"Cutting VAT on insulation, solar panels and heat pumps is a welcome start to ending that huge waste of energy, helping keep bills down and cut our gas use. But if the chancellor’s serious about tackling the issue then it can only be the start."
Jess Ralston, analyst at the Energy and Climate Intelligence Unit (ECIU), said: “Removing VAT on energy efficiency products such as insulation is an immediate boost for families facing soaring gas bills. But there are lots more tools within the Chancellor’s grasp for getting off Russian gas and reducing household bills.
“Low interest loans have been hugely popular in Germany and could unleash private sector investment into sealing up our leaky homes, while net zero policies like incentivising the switch away from gas boilers will help to shield Brits from future fossil fuel market volatility."
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