Industry leaders slam 'perverse' EU ruling on green goods VAT

Industry leaders have attacked the EU’s decision to outlaw Britain’s reduced 5% VAT rate on energy-saving products such as insulation and solar panels, calling it “perverse” and “hypocritical”.

The European Court of Justice ruled last week that Britain’s longstanding reduced rate on the supply and installation of energy saving products breached its VAT Directive, which only allows energy saving products to use a reduced rate in social housing projects, or as part of a social policy.

It means millions of households could have to pay the usual 20% rate when installing insulation, solar panels, wind turbines, controls for central heating and wood-fuelled boilers.

A government spokesperson said: “The government will study the judgment carefully and consider next steps.”

Dave Sowden, chief executive of the Sustainable Energy Association (SEA), accused the EU Commission of “the most astonishing hypocrisy” and said the ruling was “perverse”.

Sowden added that the EU’s decision is “contrary to almost every principle and policy created to reduce consumers’ energy consumption, cut emissions and help boost economic recovery across the EU.”

John Sinfield, Northern Europe managing director for Knauf Installation, slammed the ruling as “perverse” and “nonsensical” and said it was a “contradiction where consumption of a valuable resource is rewarded and efficiency penalised”.

Pedro Guertler, head of research at the Association for the Conservation of Energy (ACE), criticised the European Court of Justice for taking a “very narrow interpretation” of the VAT directive and said the ruling meant “everything will cost 14% more.”

Richard Twinn, policy adviser at the UK Green Building Council (UKGBC), said the ruling was “ultimately bad news” for the UK.

He added that the ruling would “push up the cost of ECO, reduce the measures that can be funded through the Green Deal, and could deter people from installing solar PV and heat pumps.”

In a statement, the European Court of Justice ruled: “While it is true, as asserted by the UK, that a policy of housing improvement may produce social effects, the extension of the scope of the reduced rate of VAT to all residential property cannot be described as essentially social.”