Britain’s solar industry looks set to avoid a 400% VAT increase, after the government backs down in the face of a parliamentary rebellion.
Solar panel installations were set to increase by nearly £1,000 per household, as part of EU rules which meant that the industry would have to raise the current 5% VAT rate on “home insulation and renewables” to 20%.
In June the European Court of Justice declared the current 5% rate “illegal,” claiming that it breached the EU VAT directive.
However, the government has said that it will not oppose a Labour amendment to the Finance Bill floored by opposition parties in an attempt to quell concerns on both sides of the House of Commons, including approximately a dozen Conservative MPs.
The decision follows a deal struck with the EU after the Chancellor’s Budget which also scraps the EU mandated “tampon tax” on female sanitary products.
Leonie Greene, Head of External Affairs at the Solar Trade Association said that the government’s decision was ‘encouraging’.
Greene continues to say “increasing VAT on solar to 20% while retaining 5% for grid electricity, gas and oil defies all logic”, before thanking “the MPs of all parties who rallied in support of solar over the last week and put their name to the amendment”.
Many in the solar industry have welcomed the decision, citing the economic and environmental benefits exemplified by the recent completion of a 57,000 square meter array on the Queen Elizabeth II reservoir capable of powering 1,800 homes. The floating solar panels, which are visible from Heathrow airport, are the largest array in the world and will produce approximately 20% of the energy requirements for the nearby water treatment plants.
The government’s decision also offers encouragement to employment figures after it was estimated that as many as 18,000 jobs could be put at risk if the VAT rate was increased.
In a statement, Downing Street simply said that it is an “existing government position to reduce VAT on solar panels”.