The UK Government has told the European Commission that the current VAT rates for insulation and other energy-saving materials must remain in place.
The EC is trying to force the UK Government to raise the rate from its current 5% to the standard 20% rate, claiming that the lower rate is against EU laws.
The move is an attempt to save the coalition government’s flagship Green Dealinitiative and follows industry lobbying of cabinet minister Oliver Letwin.
The Green Deal, due to launch in October, has a ‘golden rule’, which states that the cost of any work done, must be less than the energy savings generated. If material costs escalate, this will be hard to enforce and many projects will be discounted.
The government has now announced that it is to contest the Commission’s ruling, which could see it having to make its case in the European Court.