The UK’s groundbreaking £600 million Green Deal scheme is under threat after the European Union confirmed it would mount a legal action against it.
However, the decision to challenge the Green Deal scheme in the courts has been branded as “crazy,” with politicians and business leaders from across the EU condemning the decision.
At the heart of the dispute is the UK’s long-standing commitment to charging a reduced rate of sales tax on energy-efficient materials used in the construction industry. Most items in the UK attract a sales tax rate of 20%, but the Green Deal, unveiled in October 2012, said that a reduced rate of 5% would be chargeable for energy-efficient building materials.
However, the EU says that this is against its rules, which allow a reduced rate of sales tax for social schemes but not for environmental ones. It also claims that a 75% reduction in the sales tax charged is not the best way to promote the use of energy-efficient goods.
The Green Deal scheme was brought into effect by the Energy Act 2011. This allows landlords and homeowners to make environmentally friendly modifications to their properties without paying upfront costs.
Instead, Greed Deal providers, including traditional finance companies, would meet the initial cost and the landlord or homeowner would repay the debt through savings on their electricity bills.
Several energy efficiency schemes, such as micro generation, already attract a 5% sales tax in the UK. One of the reasons for expanding the scheme to general energy-efficient building materials was to ensure the repayments to Green Deal providers would remain below the savings made.
The EU has long accepted homemade renewable energy in Britain as a social benefit, which is expected to be a key part of the UK’s defence against the legal action, as is the observation that other countries (including France) also have a reduced 5% sales tax on green building renovation.