In the United Kingdom VAT has been reduced to five percent already in some instances; but, not others. The Government has, in fact, been gradually reducing since 1998 the VAT rate until it reached five percent for professional installation of some energy-saving materials. This reduction also encompassed the use of insulation. The Government has thus recognized VAT reductions can serve a role as an incentive. However, so far, homeowners cannot benefit from these incentives should they choose to do the installations themselves. The environmental benefits of the UK government reducing Vat on all insulation work to five percent means the Government should reduce the rate of VAT on key energy efficient products, irrespective of how they are installed. The reduction of resource use thereby is also of economic benefit to UK, especially considering as recently announced by the report published by the Industry Taskforce For Peak Oil and Energy Security, UK faces an oil crunch within five years. The Government would make a start towards changing habit patterns that are required.

One group left out is the householder. Yet, under the credit crunch and falling market price of houses era we face, householders are likely to go the do it yourself route. Not surprising the Construction Products Association has seen the light and said it supports the extension of the reduced rate to those who decide to do renovations this way.

One can point out the thermal insulation market has been growing due to favorable regulation and rising energy prices. In 2007, the thermal insulation market in Europe was a 30 billion Euro market. A reduced rate of VAT on thermal insulation would enhance the demand for such products. The possible impact is illustrated by the results of a temporary campaign mimicking VAT exemption, which led to an increase in sales by 120 percent. The reduced rate of VAT, could lead tones of CO2 reduction per year. A study commissioned by the EU commission has stated that a reduced VAT rate for thermal insulation is a potentially effective instrument.

The Construction Products Association has stated that many householders are capable of installing insulation themselves and yet they are paying the full rate of VAT on a product the Government must want to encourage them to buy. It is known that buildings are the largest single energy-using sector, accounting for 40 percent of energy consumption in Europe. Insulation is a highly cost-effective end-useful measure in reducing the emissions of green house gas emissions.

It should be pointed out here a reduced VAT rate on insulation products may not be passed through by installers to their end customer. This has been assumed to be a reason why the use in the UK market has been low. When the householder is the installer this is not a factor; but, the higher VAT rate serves as a discouragement.

The results of the Isle of Man pilot study for EU on the impact of a reduced VAT rate led to improvements to the existing housing stock and reduced pressure on green field site developments. The tax intake increased and the Isle of Man Government concluded the experiment had been a fiscal success. This experiment led the Council of European Finance Ministers to decide that it would allow EU Member States to permanently reduce VAT to 5 percent from the 10th of March 2009. Yet, UU has only extended this reduction in a limited fashion. There is room for reduction of VAT to 5 percent on all insulation work. Even that done by homeowners and any other segment left out so far. Consumers would receive a clear Indication from the Government the tax system supports their part in helping the environment. This step would be an important act towards achieving and encouraging sustainable consumption patterns. This reduced VAT rate should be allowed on goods where the nature of the product is key to its beneficial environmental impact. Insulation leads to a beneficial environmental impact by the reduction of resource use.

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