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Calls to Reduce VAT On Energy Saving Measures to 5%

By Katie Anderson on September 16, 2011

Energy saving measures installed under the Government’s flagship Green Deal should benefit from a reduced VAT rate of 5% across the board.

From the WWF to the Royal Institution of Chartered Surveyors, more than 26 organisations are urging the Government to fix the rate of VAT, cutting it from 20% to 5%. The measure, the group collective says, is necessary to ensure people take part in the scheme, which is designed to reduce carbon emissions and lower fuel bills.

As it stands, certain measures – including certain small-scale renewables – are charged at 5% VAT. But most, such as fitting energy efficient boilers are not eligible for a reduced rate in VAT.

MPs are currently in the process of finalising legislation that will bring the Green Deal to fruition.  And the Government is being warned it still needs to do a lot more to encourage households to implement energy saving packages. In short, for it to be a success, the Green Deal must be made more affordable.

Aside from making it more attractive to consumers, a lower rate of VAT would also make it easier to meet the scheme’s so-called “golden rule”. Repayments have to be lower than the savings consumers make on their bills.

Under the Green Deal, the upfront costs of making energy efficient improvements, such as installing a new energy efficient boiler, cavity wall insulation or loft insulation will be met, and the money will be paid back through savings on energy bills.

Ian Fletcher, from the British Property Foundation, said they were urging MPs to encourage the Government to levy VAT at 5% for all green-deal approved measures.

“The Government must prepare for the green deal by stimulating further demand in the energy-saving market,” said Mr Fletcher, adding:

“A package of incentives will help to draw consumer attention to the green deal, bring more works within eligibility, and help support a successful launch.”