§ Lord Ezraasked Her Majesty's Government:
Whether there is any legal reason why VAT cannot be reduced to 5 per cent on the supply and installation by contractors of micro combined heat and power systems; and [HL1484]
Whether the law that permitted VAT to be reduced to 5 per cent on micro combined heat and power systems supplied and installed by contractors as a result of grant schemes will also permit VAT to be similarly reduced on the supply and installation of such systems by contractors not as part of grant schemes. [HL1485]
§ The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey)Under the European Union's sixth VAT directive member states are permitted to introduce a reduced rate of VAT for the "supply, construction. renovation and alteration of housing provided as part of a social policy". The Government have used this provision to introduce a reduced VAT rate of 5 per cent in UK law for certain contractor-installed energy-saving materials, and grant-funded installation of central heating systems, heating appliances, factory-insulated hot water tanks, micro-CHP and renewable energy heating systems.
The Chancellor takes into account legal issues alongside a range of social, economic and environmental factors when considering tax changes as part of the normal Budget process. A further announcement on measures to promote domestic energy-efficiency will be made in this year's Budget.