Scrap VAT from heat pumps to help meet climate change targets, new Onward report urges

Tax deductions to make heat pumps more affordable should be part of the Government strategy to reach net zero, a new report has argued.

A report by thinktank Onward says that while there is an official target of having 600,000 heat pumps in operation across the country by 2028, on current installation trajectories that figure will not be reached until 2057 - almost 30 years late.

It is hoped that heat pumps, which extract warmth from the air, the ground or from water, will reduce usage of gas boilers in the UK and cut carbon emissions but they can currently cost over £10,000.

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The Onward report suggests VAT on heat pumps should be cut from the current 20 per cent to nothing to make the units £2,000 cheaper for consumers.

Greater financial incentives are needed to encourage more people to install heat pumps, a new report has argued.

The report has also suggested a series of other policy measures to kickstart an “explosion” in net zero innovation such as establishing a National Energy Laboratory to conduct specialist research, as well as increasing VAT on carbon-intensive products while reducing it on low-carbon alternatives.

Former Yorkshire MP Caroline Flint, who is co-chair of the Getting to Zero commission, said: “There is no shortage of green shoots but even the best ideas need investment, mass deployment and a supportive regulatory framework to grow. The marketplace alone won’t deliver.

"This latest report from Onward sets out what the Government can do to step up the pace and drive net zero innovation forward.”

Ted Christie-Miller, report co-author, said: “Net zero means shifting, at record pace, from a heavily fossil-fuel dependent economy to one based on low-carbon sources within the space of a generation. The time available is too brief, and the risks from failure are too great, for us to just wait and see if the technologies needed are going to be ready in time.

“The Government needs to consciously create the incentives and build the institutions necessary to create an explosion in the R&D, commercialisation and diffusion of key net zero technologies. If we don’t act fast, we will pay the price in higher emissions, lower competitiveness, greater societal disruption and higher costs for consumers and taxpayers.”

Dame Caroline Spelman, co-chair of the Getting to Zero commission, said: “Industries and Regions are moving at a wide range of speeds towards net zero; the critical differentiator to a more sustainable economy will be a clear focus on accelerating innovation in net zero solutions.”

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