Cut VAT for building renovations and adopt digital tech in construction for a green recovery, says think tank

The government should cut VAT on renovating existing buildings, in line with the VAT on new build, to help revitalise the construction sector after coronavirus, says a new report from Green Alliance, on behalf of its Tech Task Force. [1]

The report says the government should also help accelerate digitalisation of the industry to improve its performance and its environmental impact. [2] Productivity in the construction industry has not improved substantially for over 25 years and the sector is a long way behind other sectors in using new digital technologies. [3]  

The government should work with industry to ensure there is better data on building performance and make up, driving use of new digital ‘material passports’ to track and reuse building resources, and it should allocate £300 million for a new programme of whole building retrofits, using offsite advanced manufacturing technology. 

The report highlights that upgrading and repurposing old buildings creates additional jobs in construction, while also helping to meet housing demand. It also significantly reduces the industry’s environmental impact. [4]

New buildings benefit from zero rate VAT, while 20% VAT is levied on repair and renovation work. This discrepancy limits the renovation and upgrade of existing buildings for a net zero future, and encourages demolition and new build, which has a higher carbon and resource footprint. [5] 

The UK has a legal requirement to create a net zero carbon economy by 2050. Eighty per cent of the buildings that will exist in 2050 are already built. Bringing VAT for renovation in line with that for new build is a necessary first step in upgrading more of the country’s existing building stock for low carbon living, says the report. 

By investing £300 million in a new programme of whole house energy efficiency retrofits, the UK could scale up supply chains for digitally enabled retrofits and deliver many more net zero homes in one step. This technique uses a combination of digital technologies to improve the accuracy and efficiency of installations, and can benefit from economies of scale to permanently reduce costs. 

Promoting digitally enabled retrofits would also help to boost the construction sector’s low productivity levels and create more, highly skilled jobs across the country. Firms that use high tech, offsite manufacturing in this way have achieved up to 75% higher productivity compared to conventional construction methods. [6]

The report also advocates new ‘material passports’, which provide a digital record of building components, and their integration in ‘digital twin’ models, which can track information about a building’s make up and performance to support improvements and better resource reuse. These digital tools are already in use in other countries, for example in the Netherlands and Singapore. 

Caterina Brandmayr, senior policy analyst at Green Alliance, said:

“As the UK looks to build back better post-COVID, businesses should be investing in those smart low carbon supply chains that will be in high demand in the future and shield the sector from further disruptions down the line. To make this a reality, the government should start by removing the tax disincentives that are stopping the renovation and repair of existing buildings, and scale up deep retrofit solutions that will create high skilled jobs across the country.”  

Rodney Turtle, VP for public policy and government affairs at Schneider Electric, said: 

“Made with valuable resources and shaping the fabric of communities, the UK’s existing buildings are assets that should not only be conserved but upgraded for a net zero future. Doing so, with the help of novel digital technologies, is a prime opportunity to revitalise the construction industry after the current crisis.”

Steve Brambley, chief executive of GAMBICA, the Trade Association for Instrumentation, Control, Automation and Laboratory Technology, said: 

“The global pandemic has had a dramatic impact on the building sector, with further repercussions likely. But we should be making use of this time, when many buildings are vacant, to look into how we can renovate, upgrade, modernise and digitalise them to radically improve their performance in future. The technology already exists, it is the implementation which needs to be prioritised for a successful bounce-back once the crisis is over.”

ENDS 

Notes

[1] Smart building: how digital technology can futureproof UK construction, a new report by Green Alliance, written for its Tech Task Force, will be published on Wednesday 20 May and is available at www.green-alliance.org.uk/resources/Smart_building.pdf   

Green Alliance’s Tech Task Force is a business led group convened by Green Alliance. It is a forum for policy innovation for smart clean growth that aims to lead policy discussions with ambitious business thinking. Its five members are: HVM Catapult, Innovate UK, Gambica, Schneider Electric and Ramboll.

[2] In addition to building renovation, there are significant opportunities for the sector to improve its performance by adopting smart low carbon solutions in constructing new buildings. The report shows that, with the help of digital technology, methods that use low carbon materials and improve building design and use could cut construction emissions generated in the UK by 40 per cent by 2025. The report outlines how government can promote adoption of digital solutions across all stages of a building’s life. Key recommendations are:

·       Introduce requirements for whole life carbon assessment and reduction targets in planning and building regulations. Reduction targets should apply to larger developments from 2025 and to all new buildings from 2030

·       Establish a new building retrofit programme, with £300 million support, to scale up whole building energy efficiency solutions. This should be delivered as part of a wider energy efficiency programme, building on the £9.2billion for building efficiency promised in the Conservative Manifesto.

·       Bring VAT for building renovation and repair in line with that for new build

·       Support better data on the built environment, by promoting adoption of digital twin solutions and materials passports

·       Lead by example in public sector buildings

[3] The UK construction sector has not improved its productivity substantially since 1994, while significant improvements have been achieved in the manufacturing and services sectors. Furthermore, construction is responsible for 60 per cent of the country’s resource demand, including high carbon materials such as steel and cement, and a third of the country’s waste, and it is therefore significantly exposed to climate and resource challenges. 

[4] Previous analysis by Experian estimated that lowering VAT for renovation to 5% would boost demand for reviving existing properties, potentially creating nearly 100,000 extra jobs in the UK construction sector and wider economy. And analysis by Cambridge Econometrics and Verco, estimated that a more extensive programme of building energy efficiency upgrade would create over 100,000 net jobs per year in the period to 2030. For more information, see www.ihbc.org.uk/resources/VAT-research-FINAL.pdf and Cambridge Econometrics and Verco, 2014, Building the future: the economic and fiscal impacts of making homes energy efficient.

[5] As an example, the report shows that the average new building today would result in four times as many emissions over 60 years, compared to the emissions generated by a pre-1930s solid wall building with deep retrofit. Deep retrofit would also result in just over a quarter of the embodied carbon compared to new build.

[6] Green Alliance, 2019, Reinventing retrofit