What is the Point in Insulating a New House Better?

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We tacitly assume that we have a financial incentive to fit higher wall or roof insulation levels on a new house, especially a self-build project. With fuel prices soaring in recent years, this will surely save us money year after year?

Well, possibly not. Council Tax valuation methods could make it almost pointless to insulate a new dwelling beyond a basic level. I have only examined the situation for a fairly modest-sized detached house but I suspect that similar issues would arise in smaller and larger dwellings.




The Valuation Office Agency calculates the liability of a house to Council Tax from its external floor area, not from its internal floor area. If a house utilises thicker walls or roof and becomes larger and more imposing externally, its Council Tax rises. The usable floor area, measured to the inside of the external walls, may stay exactly the same.

The Council Tax payable if you are in a particular band differs between Councils. I assume broadly that a Band D house pays £1,500 per year and that a Band E house pays £1,830/year.


A Hypothetical Case


You are one of the significant number of self-builders who build their own house on their own land. Being in this position, you will not normally know your Council Tax band until the finished house is valued. But I can show you already that you have a potential problem.

The situation is this. You have bought a typical suburban infill building plot, measuring roughly 13 x 40 m. You plan to construct a modest self-build 120 m2 detached house. It is laid out on two floors. It measures 6 x 10 m in plan, measured internally.

You and your architect have already decided that you will use at least 150 mm insulation in the cavity walls. So the proposed house measures 6.7 x 10.7 m in plan externally, giving an external area of 72 m2. But you are still debating whether to increase the wall insulation thickness by another 150 mm to 300 mm; i.e., more typical of the Passivhaus Standard.

Your architect, or an energy expert, has advised you that the extra insulation will cost you around £2,100 and will reduce your need for heat by 1,580 kWh per year. Assuming that the house has a 92-96% efficient natural gas condensing boiler, at 4 pence per kWh you will save £69 per year worth of gas. While this is not a stellar return on a £2,000 investment, you reluctantly accept it as a cost of ‘going green’.

What you have missed, though, is that the resulting 9 m2 increase in your house’s ‘external area’ adds statistically around £70/year to your Council Tax bill. Having spent £2,000 on better insulation, you might like to have saved something on your overall bills, albeit only £69/year. But you have not. The extra tax that on average you must pay is similar to the value of the fuel which you save.

It works like a lottery too. If, with better insulation, a dwelling is valued one Council Tax Band higher, it costs you £330 per year in extra Council Tax. This exceeds the fuel saving. Other dwellings may stay within the same Council Tax band and will make a £69/year saving.


A Flawed Tax?


Hardly anyone planning a self-build project is aware that they risk becoming a victim of this ‘stealth tax’. Nor does the disincentive seem to be getting any less. Although real fuel prices nearly doubled over the last ten years, Council Tax rose sharply too.

Council Tax is problematic in other ways. But while we wait for a better system, if we take the government’s word for it that it is committed to energy efficiency, why does it not correct such basic flaws in the existing system?





[1] http://www.voa.gov.uk/.

[2] Thought to be typical of the West Midlands region but only based on a short check of four councils; i.e., Herefordshire, Malvern Hills, Wychavon and Bromsgrove.

[3] Large compared to UK developer-built or RSL housing but modest in scale by the standards of UK self-builders or homes elsewhere in Europe or North America.

[4] Government Regulatory Impact Assessments (RIAs) in the early 2000s indicated that adding extra cavity wall insulation to a new building costs typically three times more than the insulation material itself; i.e., full-fill, semi-rigid mineral fibre. The premium reflects labour charges and the extra costs of the wider roofs, deeper window reveals, etc. The calculations used the Passivhaus Planning Package 2007 version in average UK climatic conditions and an internal temperature of 21.5̊°C; i.e., as monitored in Passivhaus-level buildings.

[5] Estimate for dwelling floor areas typical of Bands C, D, E and F; i.e., detached houses with internal floor areas broadly from 90 to 225 m2, located in the West Midlands region.

[6] The bulk of householders could experience a drop in local government taxation under a revised system: http://www.jrf.org.uk/publications/council-tax-impacts. The Rates, which preceded the Council Tax, were considered in hindsight to have been cheaper to collect and less regressive.