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Bungling EU Bureaucrats Could Derail Green Deal
15th July 2012
Bungling EU bureaucrats threaten to damage the Green Deal, in their attempts to regulate VAT across EU member states. That's the view of the UK's Builders Merchants' Federation, which warns that enforcement of 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 HM 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 Westminster 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 and others within the industry, have been urging the Government to extend the 5% VAT rate to all Green Deal projects, the European Commission's move could prove disastrous.
Any increase in the cost of materials will affect the Golden Rule calculation and have major implications for the Green Deal if the Government is forced to increase VAT on insulation, central heating, system controls, heat pumps, and solar 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 instead apply to both.
BMF 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. The BMF reckons 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 HM Government wants to adopt the Green Deal, when it comes into force in less than 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.
The BMF argues that whilst bishops and bakers may have the clout to force the Government to concede on its VAT plans for alterations to churches and historic buildings, sales of static caravans and hot pasties, the building trade faces the prospect of the Chancellor removing a lower rate that already exists for some energy-saving measures. The irony of course is that the removal of the lower VAT rate would come just before the introduction of a flagship policy to improve the thermal performance of British homes and workplaces.