European Commission take UK Government to court over Green Deal tax cuts

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The Government's Green Deal has come under fire from the European Commission for allegedly breaking EU rules on tax regulation.

The flagship scheme only launched late last month, but the UK Government is now being taken to court by Brussels: With the Commission claiming that under EU rules, any VAT reductions must be linked to social  policy - energy-saving materials are not directly covered under such legislation.

The statement read: "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."

The statement described how energy-saving materials could actually be covered by such regulation, but only if the certain conditions were met, listing examples such as social policy purposes in the construction, renovation and alteration of housing.

The statement continued: "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."

All EU member states agreed to abide by such regulations unanimously, insisting that the list was adhered to strictly to ensure a 'fair and level playing field' between all members.

The Commission initially sent out a notice to the UK Government in June of last year, but decided to refer the case to the Court of Justices after the reply they received in August was deemed unsatisfactory.

The Green Deal scheme is designed to subsidise work on people's homes, covering work such as boiler replacement, fitting new wall or loft insulation, or other such measures aimed at improving energy efficiency. The customer then pays back for the work as part of their energy bill.

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