EU ruling means it will cost more to become more energy efficient
Sometimes bureaucracy is annoying; sometimes it’s plain silly and sometimes it’s downright ridiculous. Despite generally encouraging energy efficiency and green measures, a new VAT ruling from the European Court of Justice will mean that UK householders will have to spend 15% more on energy-saving home improvements.
Government and tax officials have, perhaps unusually, joined with green campaigners to oppose the ruling from Brussels that could add £1,500 to a set of rooftop solar panels and £70 to cavity wall insulation in a semi-detached house. The problem the EU have with the measures is to do with VAT.
Currently, energy saving expenditure on things like insulation and a new boiler, as well as on renewable devices like solar panels and wind turbines, qualifies for reduced VAT rates of 5%, just a quarter of the standard 20% rate of VAT. However, the ECJ has ruled that Britain’s favourable tax treatement on energy-saving materials breaks EU law, even though the policy was introduced in 2000 to help meet EU targets to eliminate energy waste by 2020.
In its binding (ie compulsory) decision, the European court said that reduced rates of VAT are only allowed on energy-saving materials installed in social houses or if it forms “part of a social policy.” The court rejected appeals from Britain that reducing the cost of energy-saving materials is socially beneficial and should therefore qualify. It also seems to contradict binding EU rules that oblige member states to “adopt policies which encourage…using efficient heating and cooling systems.”
“In these straitened economic times additional costs really could make the difference between installing and not installing,” Jenny Holland, of the Association for the Conservation of Energy, which represents the energy conservation industry told the Telegraph. “It’s completely illogical with the general thrust of EU policy making.”
It will cost £116 extra to insulate a semi-detached house with cavity wall insulation and radiator valves under the higher rates, which costs £808 today but would increase to £923, according to the Association’s calculations.
Treasury and HMRC officials are now working with the industry and campaigners to see whether they can find an alternative route, or a loophole to circumvent the decision, as otherwise the higher rate of VAT will come into force next year. No one who has pre-ordered or prepaid for these items will be affected, an HMRC spokesperson said.