Watermelons Red Tape: Brussels May Kill Green Deal

Posted: November 23, 2012 by tallbloke in Carbon cycle, Energy, government, Incompetence, Legal, Politics, Robber Barons

From ‘the left hand does’t know what the right hand is doing’ dept. The ever-so-green Eurocrats apparently don’t want an emissions reduction from energy efficiency…

GWPF.org Date: 23/11/12  by GreenClick

The future of the Government’s flagship Green Deal programme hangs in the balance after an intensifying tax dispute with the European Commission. If, as threatened, Europe sticks to its ruling it means the Green Deal will be grounded because it will no longer be financially viable.

Brussels bureaucrats have warned Whitehall to overhaul the tax rules regarding energy-saving materials or face the prospect of massive fines at the European Court of Justice.

Currently, the UK Treasury levies a reduced rate of 5% VAT for insulation materials for walls, ceilings, floors and water tanks. However, the full 20% rate of VAT still applies to energy-efficient windows and doors.

In August, the European Commission warned the UK Government the reduced 5% tax rate is unlawful and it must change the law or face the prospect of the European Court imposing huge financial penalties.

The UK Government is fiercely disputing the ruling but today a spokesperson for Europe’s Tax Commissioner Algirdas Šemeta said it was unlikely the challenge will be successful and said the UK had only this week filed the formal paperwork to appeal.

“The current infringement proceeding is on the application of the reduced VAT rate to some goods and services which according to the VAT directive would not be subject to this rate,” she added.

“How this infringement interacts with the eligibility criteria of investments under the Green Deal is a domestic UK issue on which we do not have comments.”

However, she warned of a lengthy delay to a final outcome as the Commission deals on average with 400 to 500 infringement cases a month.

If, as threatened, Europe sticks to its ruling it means the Green Deal will be grounded because it will no longer be financially viable.

Read the rest (if you can stomach it) here.

What I don’t get about this is: The VAT accrues to the treasury anyway, so why can’t the govt.  simply plough the revenue back into the Green Deal system if they want to achieve its objectives?

In other news, the ‘Green Levy’ on our energy bills is set to triple over the decade: H/T Bryan

“Energy firms will be allowed to triple the amount of money they add to customers’ bills to pay for renewable power, nuclear and other environmental measures, under plans to be announced by the government next week. The deal over a new energy bill, struck after weeks of sometimes bitter negotiations between the coalition partners, will mean the total amount energy suppliers can add to domestic and business bills will rise from £2.35bn this year to nearly £10bn at the end of this decade. Adjusting for inflation that would be worth £7.6bn in today’s prices, an increase of nearly three times. [The Guardian]“


  1. Chris B says:

    I hate to think of the EU actually being useful for something, but in this case their bureaucratic meddling may kill a stupid UK domestic scheme. Watermelon heads must be exploding! can’t wait to see the reaction from Moonbot and the odious Leo Hickman. Oh, and Tom Yeo of course.

  2. michael hart says:

    I reserve judgement on this case. The EU can sometimes be useful to UK governments, of any flavour, if it can be blamed for decisions that may be domestically “difficult” but not wholly unwelcome or unforeseen. I believe other European governments also find this to be helpful on occasion. (Greece?)

    I wonder what the other ~500 monthly cases are usually about, and from where?

  3. oldbrew says:

    EU rules say reduced VAT rates can be applied to:

    ‘the following labour-intensive local services: ……the renovation and repair of private dwellings, excluding materials which account for a significant part of the value of the service supplied’.

    What you can’t do is have different rates of VAT within any one of their eligible categories of local service. It’s the (EU) law, unless they make a specific exception.

  4. Stephen Richards says:

    The french get round it by given us a reduction on income tax. C’est facile.

  5. Doug Proctor says:

    Stephen Richards says:

    November 23, 2012 at 3:04 pm

    Gaming the system. What a waste of manpower and money!

    The philosophical drive of the individual is to improve his condition by creating either more things he wants or needs, or to create the same things easier or more cheaply. The philosophical drive of the state is to improve the its condition by determining the process by or the extent to which anything is done. The individual does while the state criticizes or denies.

    The world needs a political revolution of a philosophical nature: either work to facillitate action, or get out of the way.

    [Soldier] If it moves, salute it. If it doesn’t, pick it up. If it’s too heavy to move, paint it.
    [Statesman] If it moves, tax it. If it can’t be taxed, ban it.

  6. unknownknowns says:

    What I don’t get about this is:
    I have read somewhere that part, not sure of the %, of the VAT receipts are paid to the EU.

    Just looked for a link and found this from the BBC.

  7. oldbrew says:

    @ unknownknowns

    VAT rates can be varied within certain categories allowed by Brussels. That’s how we get 5% VAT on domestic fuel for example. But if the UK wanted to make the domestic VAT rate 5% for electricity and 20% for gas, that would be against the rules.

    The Green Deal has come up against the same restriction. The proportion of the total UK VAT income going to the EU is a separate matter.

  8. John Johnson says:

    It never ceases to surprise me how people shoot from the hip and don’t drill down into the facts.

    This issue has been in the wings for some time so as a Green Deal Provider we ran some numbers to determine how a change in VAT from 5% to 20% on products and materials involved in the deployment of Green Deal measures might affect a typical project as the labour content is currently costed at 20% anyway so therefore does not alter.

    If imposed, the impact would make a difference to the outcome of the Golden Rule, though it is actually not as critical as you might think; average project £5000, product and materials @ 60% value = £3000. Current VAT @ 5% = £150 and at 20% = £600. A difference of £450.

    Though unwelcome, the impact is fairly minor when you consider that a difference of 1% on the interest rate over 25 years will increase the repayment cost by £1250 so to offset the impact of an increase in VAT there would need to be a reduction realignment to the charged interest rate of 0.36%. Therefore it is the interest rates applied that make a much bigger impact on the initiative, not a possible, though unlikely change to how VAT is treated in this sector.

    The Green Deal/ECO is HUGE undertaking and brings with it many changes and implications to existing operational and market channel processes so for one am not surprised that there are many “teething problems” and fully believe that, given time, these will be sorted and what will remain will deliver a genuine impact to how we view the energy we all use and protect this and the environment for future generations.

    It’s easy to be critical, and just for the record I do not feel that the Government are entirely without blame in how Green Deal is currently perceived, but with that said this is a journey for all of us into the unknown which started as someone’s idea and which is not becoming a reality, with everyone invited to play an active part if they so wish. I see that as a great opportunity!

    p.s. I am not a tree huger! This just seems like a sensible way of taking action though always interested to hear what alternatives anyone has. Surely not more of the same??

  9. tallbloke says:

    John, thanks for your input. I must declare my own interest. I had a solar panels firm round and I’m interested in signing up for this myself. I wrote another article a while ago about this when Green Deal was first announced. I’d be interested in your reaction to my thoughts.
    By the way, I have worked in buildings maintenance and installations myself as an engineering technician (many years ago), so I appreciate some of the pressures policy uncertainty brings to project planning.

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