by Brendan Coyne
The Treasury has a fight on its hands after the European Commission said UK VAT relief on energy-efficient equipment broke European Union rules.
Brussels has threatened to go to the European Court of Justice if VAT on equipment such as insulation and microgeneration is not increased from 5 per cent to 20 per cent within two months. The issue has serious implications for the feed-in tariff scheme and programmes such as the Green Deal.
A Treasury spokeswoman told Utility Week that it “did not agree with the Commission” and “would not have introduced a reduced rate if we thought it was not allowed”. The Treasury will “study the Commission’s argument carefully”, she added.
The government will likely exploit a clause in the rules that allows VAT relief to be applied in housing for reasons of social policy. That would be valid for the Energy Company Obligation (Eco) part of the Green Deal, but Liz Lainé, energy expert at Consumer Focus, questioned whether the EU would accept that social need applies across the sector.
She said the government needed to make the case for the application of the VAT relief across the entire housing stock. “Vulnerable customers don’t stay in one place,” she said.
This article first appeared in Utility Week’s print edition of 29 June 2012.
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