The UK government is to defend lower VAT rates for insulation against a European Commission ruling that they are illegal. The reasoning behind the government’s defence is an effort to save the Green Deal from being ‘brought down’ by potentially huge cost increases for energy efficiency work driven by Europe’s demand for a quadrupling of the VAT rate on energy-saving materials such as insulation and follows industry lobbying of cabinet minister Oliver Letwin.
In June of this year, the European Commission informed the government to amend UK legislation to bring VAT on energy-saving materials in line with other products. Currently energy-saving materials are taxed at 5% but the Commission said this contravened EU law and they should be taxed at the standard 20% rate.
If endorsed, this would jeopardize the Green Deal by making it very difficult for projects to meet the scheme’s ‘golden rule’, which states the cost of the work must be less than the energy savings generated. Following this ruling, the government announced that it would challenge it- which could potentially lead to the government having to make its case in the European Court.
