VAT is a broad-based tax on consumption and the 20 per cent standard rate applies to the vast majority of goods and services. While there are exceptions to the standard rate, these have always been strictly limited by both legal and fiscal considerations.
One such exception is a reduced rate of VAT at 5 per cent, subject to certain conditions, for residential renovations, such as building services and materials. This includes conversions of buildings from one residential use to another, conversions from commercial to residential use, and the renovation of properties that have been empty for two years or more prior to the renovation work.
Another exception is applied to the installation in residential accommodation, including housing association accommodation and care homes, of various energy saving materials (ESMs), such as insulation and draught stripping. At Spring Statement 2022, the Chancellor announced that installations of ESMs will now be zero rated from 1 April 2022 to 31 March 2027 in Great Britain. He also announced the removal of complex qualifying criteria. Further information can be found at: https://www.gov.uk/government/publications/changes-to-the-vat-treatment-of-the-installation-of-energy-saving-materials-in-in-great-britain/the-value-added-tax-installation-of-energy-saving-materials-order-2022.
Expanding the reliefs further would come at a significant cost to the public finances. For example, introducing a reduced rate of VAT on all renovations and repairs to residential properties would cost around £3.75 billion per year. Such costs would have to be balanced by increased taxes elsewhere, increased borrowing or reductions in Government spending. However, the Government keeps all taxes under review.