MPs approve changes to reduced VAT rate

The amendments will remove the reduced rate on the materials element of the cost of installing energy saving materials in residential accommodation where the cost of the installed materials exceeds 60 per cent of the total cost of installation. Further, wind and water turbines have been removed from the list of goods that are deemed energy saving materials. More information on the change can be found here.

Financial Secretary to the Treasury Jesse Norman explained that even though the UK is set to leave the EU, the UK could be placed under infraction proceedings if the Government delayed on this matter, adding that it is perfectly possible for a future government to reverse the change by statutory instrument. After meetings between the Treasury and European Commission the Government agreed with the Commission to maintain much of the reduced rate of VAT for solar panels, meaning that the changes will now affect far fewer installations. HMRC do not expect the changes to have a significant impact on the industry, he said, with around 1,500 future installations of solar panels, energy-saving boilers and wind turbines, plus some other smaller-scale items, expected to be affected annually.

Shadow Chief Secretary to the Treasury Peter Dowd complained that the Government does not take the climate crisis seriously, continuing to support fossil fuels via the tax system. Rules based on the proportion of installation cost versus capital cost could disproportionately disadvantage people in less prosperous areas of the country where installation costs tend to be lower. This measure might also hit heat pumps and combined solar and storage systems, as the cost of the materials is likely to exceed the 60 per cent limit, he complained. Had the Government redesigned the scheme so that it took social context into account, they would not necessarily have had to scrap lower-rate VAT on energy-saving materials, he argued.

SNP economic spokesperson Kirsty Blackman complained that the TIIN (Tax Information and Impact Note) on this measure does not adequately discuss the impact on the industry. If this order has a negative impact on the development, creation and installation of battery storage, we will be much less likely to meet our climate change obligations, she warned. The MP added that choosing a threshold of 60 per cent seems very odd.

Conservative MP Richard Benyon suggested a grant scheme on the model of the churches scheme and asked about the potential option for HMRC to allow stand-alone battery installs to attract the five per cent rate, opening up the battery retrofit market to around one million homes that already have solar.

Closing the debate, the Financial Secretary said he will considered Benyon’s ideas. The Tax Minister told Blackman that the 60 per cent rule meets the twin concerns of complying with EU law and minimising any adverse impact on UK businesses.

The full 24 June 2019  session can be read here.

By Hamant Verma