Green Deal tax cuts 'break EU law'


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The Government is being taken to court by Brussels for offering across-the-board tax cuts to encourage homeowners to make their houses more energy-efficient.

The European Commission claimed that, under EU rules, such VAT reductions must be linked to "social policy" and warned in a statement: "The Commission is aware that the reduced VAT rate for energy-saving materials has been linked to the UK's 'Green Deal' to improve the energy efficiency of buildings.

"While it supports the objectives of the UK Green Deal, the Commission does not believe that breaking EU VAT rules will help in achieving these objectives."

Under the EU's VAT Directive, member states can apply lower-rate VAT to "the supply of goods and services used in the housing sector, so long as this is part of a social policy".

The statement announcing legal action in the European Court of Justice for breaching the rule explained: "Energy-saving materials could be covered by this provision if the conditions are met, ie if they are used for social policy purposes in the construction, renovation and alteration of housing.

"However, there is no provision in the VAT Directive to allow a reduced VAT rate on 'energy-saving materials' specifically, and the universal application of a reduced rate for energy-saving materials is therefore not allowed.

"By allowing a reduced VAT rate to all energy-saving materials, the UK is therefore going beyond the scope of what is permitted under EU law."

When the VAT Directive was drawn up, the EU's national governments, who all backed it, agreed on the list of goods and services qualifying for a reduced rate and they also insisted that "the list be strictly applied, with no room for manoeuvre or interpretation", said the Commission.

This was important, insists the Commission, to prevent competitive distortions in the single market and to ensure "a fair and level playing field" between member states.

© 2013 Press Association

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