The European Court of Justice has ruled against the UK government's policy of applying a reduced rate of VAT for the supply and installation of energy-saving and renewable measures.

In a judgment published on 4 June, the Court decided that the supply and installation of 'energy-saving materials' in the housing sector did not fall into any of the categories in which a reduced VAT rate (currently 5% in the UK) can apply.

The judgment means that VAT on energy-saving materials will have to be charged at the UK standard rate (currently 20%), a decision which means UK households could face paying more for energy-saving measures, including insulation and solar panels, in a move that has been labelled ‘hypocritical’ by industry leaders.

Against a back-drop of stringent EU energy reduction targets, this decision appears to contradict efforts to help consumers reduce their energy consumption and bills by making their homes more efficient, the Sustainable Energy Association (SEA) has argued.

Urging the UK government to take a stand and find a way to fight the decision, Dave Sowden, chief executvie of SEA, said: “This is an action by the EU Commission of the most astonishing hypocrisy. In one breath, the Commission and the EU Institutions implore Member States to take efficiency and sustainable energy more seriously, yet in the next, they use legal means to try to abolish the very policies the UK has in place to achieve this.

“This perverse decision will have no impact whatsoever on cross-border trade between the UK and the rest of the EU. It is an epic example of Europe meddling in domestic policy for no trading benefit whatsoever. In fact, it is contrary to almost every principle and policy created to reduce consumers’ energy consumption, cut emissions and help boost economic recovery across the EU.

“At the SEA, we are urging the UK government to act now. We believe there are strong legal reasons to retain the reduced VAT rate, enabling hard-pressed consumers to cut fuel bills without paying more to do it. We need to stand up to Brussels on this and find legal means of preserving most of our reduced VAT rates. The new government should make this an essential part of an ambitious strategy to drastically improve the efficiency of our buildings – and ultimately help consumers to permanently reduce their bills.”