§ Mr. SayeedTo ask the Chancellor of the Exchequer further to his answer of 22 January 2003,Official Report, column 42W, on thermal insulation, what the implications are of the European Union Court Case 416/85, EC Commission v. United Kingdom for the possibilities of VAT reduction on the sales and installation of energy saving materials; and if he will make a statement. [98563]
§ John HealeyEuropean Court of Justice case 416/85 concerned the scope of the UK's zero rates. The Court held that zero-rating could only be justified for clearly defined social reasons and for the benefit of the final consumer.
The long-standing formal agreements with our European partners make entirely separate provision for reduced rates (of no lower than 5 per cent.) and allow relief for the 'supply, construction, renovation and alteration of housing provided as part of a social policy'. Under this provision, the UK has been able to introduce a reduced rate for installations of certain energy-saving materials in homes. Our current policy is to restrict the relief to the installation of materials whose primary purpose is to save energy, and the European Court case has no bearing on this limitation.
As I explained in my answer of 22 January, we are not able to introduce a reduced rate of VAT for energy-efficient or energy-saving materials sold direct to the public. This is not because of the European Court case, but rather that the reduced rate provision makes clear that goods and materials can only have a reduced rate when they are supplied as part of an overall service.