EU Meddling in Green Deal?

12th July, 2012

Enforcing an EU Directive may damage the Green Deal - and further depress the market for everyday building materials due to higher VAT, according to The Builders Merchants' Federation (BMF). The BMF is warning that enforcing an EU Directive may scupper the Green Deal - and further depress the market for everyday building materials due to higher VAT.

The European Commission has told the Government to amend UK legislation which allows a reduced VAT rate for the supply and installation of energy-saving materials - such as insulation. Brussels says the current 5% rate levied on these materials is illegal - and if the Government does not change British law within 2 months, the Commission may refer the matter to the European Court of Justice.

At a time when the BMF has been urging the Coalition Government to extend the 5% VAT rate to all Green Deal projects, the European Commission’s move could be disastrous. Any increase in the cost of materials will affect the Golden Rule calculation. The ruling will have major implications for the Green Deal if the Government is forced to increase VAT on insulation, central heating & hot water system controls, heat pumps, and solar pv & thermal panels to the 20% standard rate.

The BMF has long held the view that it is wrong to apply 5% VAT on energy consumption but 20% VAT for energy conservation. It believes the 5% rate should apply to both.

Soho Square staff wrote to Treasury Ministers back in March 2012 outlining the compelling case to review current VAT rules and rates. Existing arrangements are complex, confusing and do not favour green improvements. We reckon most SME builders do not know how these apply at present - and it is unlikely their customers do either. But these are the very same people the Government wants to adopt the Green Deal when it comes into force in 80 days’ time.

The BMF’s worry is that with Parliament due to break for the Summer Recess next week, the VAT change demanded by Brussels may go through on the nod.

Sadly, it seems that bishops and bakers have the clout to force the Government to concede on its VAT plans for alterations to churches & historic buildings, and sales of static caravans & hot pasties. Yet the building trade faces the prospect of the Chancellor removing a lower rate that already exists for some energy-saving measures just before the introduction of a flagship policy to improve the thermal performance of our homes and workplaces.

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