Parliamentarians and Industry Leaders Call for Widening of VAT Relief for Low Carbon Heating

LONDON, UK. September 3rd, 2024 - A group of cross-party MPs and Peers has urged the UK Government to adopt a technology-neutral approach to home decarbonisation. 

In a letter addressed to James Murray MP, Exchequer Secretary to the Treasury, the co-signatories advocate for the inclusion of heat batteries as Energy Saving Materials (ESMs) in the upcoming Autumn Statement. The letter was sent in tandem to an industry letter on the same subject, with signatories including Centrica New Business & Net Zero, OVO, EON and Thermal Storage UK.

 

The current ESM status grants VAT relief to a limited range of low-carbon technologies, predominantly heat pumps. While heat pumps play a crucial role in reducing carbon emissions, they may not suit all UK homeowners. An estimated 20 percent of the UK’s housing stock, representing over 5.5 million households, may find it more difficult to accommodate individual heat pumps due to space constraints and may not have access to a suitable local heat network.

 

Heat batteries offer a viable alternative, operating at temperatures equivalent to traditional fossil fuel systems and using existing home infrastructure such as pipes and radiators. They provide an effective low-carbon heating solution with running costs comparable to heat pumps. Moreover, when compared to electric boilers, heat batteries are half the cost to run. 

Despite strong support from senior officials in the Department for Energy Security and Net Zero (DESNZ) and other government entities, heat batteries narrowly missed out on achieving ESM status in Autumn 2023 due to definitional issues. Since then, ongoing discussions between the DESNZ, HM Treasury (HMT), and HM Revenue & Customs (HMRC) have sought to address these barriers. However, the scope of ESM relief has not yet been expanded, despite HMRC acknowledging that heat batteries meet the objectives of the scheme. 

The cross-party letter is co-signed by prominent parliamentarians including Afzal Khan MP, Ben Lake MP, Bob Blackman MP, Lord Storey, Lord Duncan of Springbank, Baroness Whitaker, Baroness Sheehan, Baroness Brown and Baroness Hayman. The issue has also garnered the attention of a number of newly elected Parliamentarians who have made representations to the Treasury on behalf of the heat battery industry. 

Afzal Khan, Labour MP for Manchester Rusholme said: “I know first-hand from my constituents in Manchester Rusholme the devastating impacts high energy bills are having on low-income households as thousands are driven into fuel poverty every year and so many people are still wondering how they are going to make ends meet.

“This is why I support proposals to extend ESM status to heat batteries which, under the right policy framework, will save low-income households hundreds of pounds per year and get Britain back on track to meeting our climate targets. I believe this move can help deliver the new Labour Government's ambitious national Warm Homes Plan and support our commitment to make Britain a clean energy superpower.” 

The co-signatories emphasise that extending ESM status to heat batteries will particularly benefit smaller, low-income households that lack outdoor space, alongside a request that VAT relief for all ESMs runs until 2030. This is crucial for reducing household carbon emissions by offering consumers a variety of viable and cost-effective, low-carbon heating options. 

The call from parliamentarians mirrors the needs of industry. Co-ordinated by Thermal Storage UK, the industry letter recommending modernisation of the ESM technology list includes household names such as Centrica New Business & Net Zero, OVO and EON, alongside Energy Saving Trust and the Heat Pump Federation. Co-signers include innovators of green technologies such as heat battery manufacturer, tepeo. 

Tom Pakenham, Commercial Director, Centrica New Business & Net Zero commented: “Helping the UK reach net zero needs to be simple and affordable for households. Providing VAT relief on a whole range of low carbon technology will give homeowners more choice on the solutions that will help to decarbonise their homes. We look forward to working in collaboration with the Government on this and other initiatives to empower UK households on their journey to net zero.” 

Johan du Plessis, CEO of tepeo said: "The Secretary of State for Energy Security and Net Zero has expressed a commitment to decarbonising millions more households. By widening the list of ESMs to include heat batteries, the government can fulfil this ambition and support households in making sustainable choices that suit their unique needs."

 

The co-signatories strongly support the UK government including heat batteries in the ESM scheme and welcome any discussions between the Treasury, industry representatives and heat battery manufacturers to help achieve this. They believe that this step is essential for achieving the UK’s home decarbonisation goals and providing households, particularly where heat pumps are less suitable, with a low carbon heating option.

ENDS