Associate Feature: Let’s level the financial playing field, not Scotland’s built environment
As the Scottish Government has recognised, urgent policy intervention is needed to decarbonise the built environment sector at the scale and pace required to achieve Scotland’s net zero targets. However, current Westminster tax policy is antithetical to the well-being and sustainability of our built environment and, therefore, to achieving these goals.
Under the current UK tax structure, 20% VAT is applied on most repair and maintenance. In contrast, most demolition and new build projects are not charged VAT at all, creating a perverse environment where the replacement, rather than the repair and restoration, of Scotland’s built environment is financially incentivised.
As UK-wide tax reform appears unlikely, Scottish Government must think creatively about how its devolved powers can be best leveraged to support the construction industry’s vital role in realising our collective sustainability goals. Urgent sectoral transformation will require input and engagement from industry practitioners, policymakers, researchers, and professional bodies like CIOB. Could the Scottish Government implement a demolition levy, for example, to level the unequal playing field that threatens the sustainability of our built environment?
The current financial incentive to demolish perpetuates the construction sector’s reliance on the linear economy – take, make, and throw away – which presents significant challenges to sustainability goals. The energy used to build, operate, and demolish buildings makes up 9% of global greenhouse gas emissions and 40% of the world’s energy use. At present, more than half of the UK’s Construction & Development Waste (CDW) goes directly to landfills. Further, there are several knock-on challenges with the creation and disposal of CDW. For instance, the silica dust created by demolition and the incineration of CDW both pose acute risks to public health and the environment.
Conversely, retrofit buildings will often outperform new in terms of overall lifetime carbon emissions. Research has shown that as much as 50% of the total energy consumption of a building remains embodied in its materials. It has been recognised that retrofit and renovation works can deliver economic stimulus and create local jobs. Retrofit works are labour intensive and grounded within local supply changes; these are ideal projects to maximise employment within the sector, support regional growth and provide opportunities for training and re-training in low-carbon construction skills. Research by the Construction Industry Collective Voice (CICV) suggests that if VAT was reduced from 20% to 5% in the sector, it could generate £80-400 million in Scottish GVA and support between 1,500-7,500 full-time equivalent jobs in Scotland.
Evidence suggests that a demolition levy could catalyse a shift in priority to favour retrofit projects. Regulatory measures have been proven effective in undergirding similar types of sectoral culture shifts in the UK. A report by University College London in 2022 showed landfill taxes and the application of an aggregate levy facilitated a 70% decline in the amount of CDW disposed to landfills. International studies have similarly concluded that levies were more effective at CDW mitigation than financial incentives. Additionally, the levy models have the co-benefit of providing a new revenue stream for the government.
Revenues from a demolition levy in Scotland could fund green initiatives that support energy-efficient upgrades to housing, help low-income and vulnerable households cope with home repairs and rising fuel prices, or preserve Scotland’s historic building stock.
Addressing the sustainability of the built environment will require coordinated, long-term action; various mechanisms will be needed to bring about the culture shift to drive a greener built environment. Considering the unequal playing field created by today’s VAT structure, we urge the Scottish Government to engage its devolved powers creatively, considering the value a demolition levy could bring to the construction sector, the economy and Scotland’s built environment writ large.
This article is sponsored by the Chartered Institute of Building. This article appears in Holyrood’s Annual Review 2021/22.