The British government has no intention of raising VAT on energy efficiency products from 5% to 20%, bypassing a ruling of the European Commission that urged London to bring its legislation into line or be sued in the EU Court of Justice. Some MEPs are joining the UK in its cause, calling the Commission's ruling "complete nonsense".
British Energy and Climate Change Minister Gregory Barker announced on Twitter that he has the support of the British government in fighting the EU's ruling on a 'green VAT'.
Barker started a Twitter campaign against the tax on energy-efficiency products on 10 September. VAT was reduced to 5% on energy efficiency products in the UK to tackle fuel poverty, reduce carbon emissions and create jobs.
“UK government tells me it will fight an EU ruling that [would increase the] 5% VAT on energy efficiency products,” Barker wrote on the social media website.
Current EU rules on value-added tax, set out in the 2006 VAT Directive, specify that member states must subject supplies of goods and services to a rate of at least 15%. Britain's discount VAT rate on such energy saving goods breached EU legislation, the Commission said in a statement.
"Under EU VAT rules, member states can only apply reduced VAT rates to a limited number of goods and services," the Commission said, adding that those did not include the supply and installation of energy-saving materials.
Britain applies a lower rate of VAT on the supply and installation of solar panels, wind and water turbines, controls for heating and hot water systems, as well as insulation. All of these are key to the implementation of the UK's new energy savings programme called the Green Deal, due to be rolled out in October.
The list of products and services eligible for reduced VAT rates spelt out in Annex III of the VAT Directive includes items such as medical equipment, passenger transport and theatre or cinema tickets. The list was last updated in 2009, but only to include local services such as meals, haircuts and home repairs. It can only be changed by unanimous decision from the 27 EU member states, making any amendment difficult.
The UK had one primary ally, France, in its fight to keep the 5% VAT on energy-saving products. France and Britain have long tried pushing for environmentally friendly goods, such as energy-efficient light bulbs and insulation materials, to be added to the list of products eligible for reduced VAT.
But most EU countries rejected the idea, saying other tools should be preferred. This time, however, some MEPs are fighting, together with the UK, against the Commission's ruling.
"I find this complete nonsense, to really prevent the British government from favouring energy efficiency investments by lowering VAT. Frankly, I don't understand … this is a decision where the Commission is doing itself huge damage", Green MEP Claude Turmes said.
British Conservative MEP Vicky Ford also criticised the Commission's lack of consistency on energy-saving legislation.
“On one hand they are telling us, 'We want energy savings', but on the other hand they appear to be removing a key policy. I have always fought for energy savings, but I have also fought for member states to have flexibility so they can introduce energy schemes which will work in their own country", she said, adding that she was "extremely frustrated" by the ruling.