In ICAEW REP 47/23, ICAEW’s Tax Faculty notes that VAT reliefs are not the optimal policy tool for driving behavioural change. In this case, the behavioural change in question is an increase in the installation of energy saving materials (ESMs). 

The faculty expresses a desire to keep the tax system simple. Instead of using VAT reliefs, the government should ideally use additional tax revenue to fund carefully targeted grants to encourage the take-up of ESMs. 

However, the faculty notes that given the current state of the structure of VAT in the UK, the VAT relief for ESMs should be extended in line with the UN’s Sustainable Development Goals. As such, the zero rate should be extended to electrical battery storage and any other technologies proven to save energy (or generate clean energy).  

Whilst pointing to a body of evidence suggesting that most of any VAT saving would not be passed through to consumers, the faculty accepts that improved profitability in the sector may increase competition and indirectly lower prices.  

As a final point, the faculty suggests that VAT relief could be simplified by broadening the zero rate to any supply of ESMs, not just the installation (or supply and installation) of ESMs.