European Commission told insulation and other Green Deal products must stay at 5% following legal challenge



The UK government is to defend lower VAT rates for insulation against a European Commission ruling that they are illegal.

The move is an attempt to save the Green Deal from being scuppered 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, the European Commission told 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 enacted, this would endanger 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.

On Monday, the government announced that it would contest the Commission’s ruling, which could see it having to make its case in the European Court.

It has now emerged that Letwin was urged to do so earlier this month in a letter signed by the heads of 18 industry organisations including Federation of Master Builders’ chief executive Brian Berry.

In the letter, seen by Building, Letwin was told to “mount a robust defence of its [the government’s} existing position”.

It said: “Quadrupling the current rate of VAT would dampen demand for the government’s flagship Green Deal scheme by making it more difficult for energy saving measures to meet the golden rule.

“This in turn would have a highly damaging effect on the already depressed state of the energy efficiency industry, and do little to help boost jobs in the construction sector.”

The signatories of the letter also included included Andrew Warren, director of the Association for the Conservation of Energy, Ian Fletcher, director of policy at the British Property Federation and John Alker, director of policy at the UK Green Building Council.