Good news: Solar VAT hike set to be vetoed in Parliament
After enduring a series of policy changes, Britan's solar community could finally be set for some welcome political news as it has been reported that a potential VAT hike on solar installations will be vetoed.
UPDATE: Since the publication of this article, Government proposals to increase the VAT on solar panel installations were rejected by MPs on 22 March, following speculation of a ‘rebellion’ backlash had the move gone ahead.
An opposition amendment was accepted by the Government without the need for a vote.
The Government appears to have had a change of heart over plans to raise VAT on solar and wind installations from 5% to a ‘consistent’ European level of 20%, with a ‘rebellion’ of backlash waiting to greet Chancellor George Osborne if he moved ahead with the tax increase.
In a statement released on Friday (18 March), the UK Treasury said: 'The UK has successfully pushed to ensure that the Commission’s VAT Action Plan, due to be published on 23 March, sets out provisions to give powers over VAT rates back to national parliaments'.
"The installation of all energy saving materials including solar panels, wind turbines and water turbines will also continue to benefit from the current, reduced rates of VAT."
Under the new ruling – which has gained cross-party support - it is expected that the House of Commons will agree to keep solar and other renewable sources in the lower VAT tax band.
The Government will not oppose the decision to halt the VAT increases with Prime Minister David Cameron’s spokeswoman Helen Bower stating that the UK Government had been ‘engaging hard’ with the European Commission to keep the lower VAT rates in place.
“It is an existing government position to have a reduced rate of VAT on solar panels,” Bower said. “We will continue working hard to make sure that we can set the VAT rates on these types of products at a level that we think is appropriate for Britain.”
The Government’s original proposal to increase the level of VAT was met with widespread criticism across the sustainability and renewables sector. One of the more vocal opposition was the Solar Trade Association (STA). Previously launching a £1 plan to save the industry, the STA estimates that the VAT increase would add £900 to the cost of a residential solar photovoltaic installation.
STA’s head of external affairs Leonie Greene said: “The signals coming from Government appear to be very encouraging. Increasing VAT on solar to 20% while retaining 5% for grid electricity, gas and oil defies all logic, which is why the STA has consistently taken a strong line on this issue.
“We also want to see the reduced solar rate of VAT in black and white in the Finance Bill later this year. What prospective solar homeowners and the industry needs more than ever is certainty – we need to know for sure. The solar industry owes a big thank you to the MPs of all parties who rallied in support of solar over the last week and put their name to the amendment.”
Adding to campaigners supporting this U-turn is Friends of the Earth's renewables campaigner Alasdair Cameron who said: “This looks like good news – a VAT hike so soon after the government’s recent cuts in support for renewables would have cast yet another dark cloud over the UK’s solar industry. Allowing solar and energy efficiency products to pay a reduced rate VAT will help keep prices lower for households."
Home sweet home
The news came on the same day that David Cameron acknowledged the Southill farm – set for construction in the Prime Minister’s constituency – as a ‘great example of people’s enthusiasm for this technology’.
Speaking after it was revealed that the community farm had received £350,000 in investment from local people – although a £2m target is needed – Cameron said: “I am very proud of my Government’s green record – and especially the fact that 98% of the UK’s solar panels have been installed since I became Prime Minister.
“The Southill Solar project is a great example of people’s enthusiasm for this technology. As costs come down even further, I look forward to solar competing against other technologies and continuing to be an important part of the UK energy mix.”
If the lower VAT pricing is retained, the solar industry can begin to recover some of the investor confidence that has been lost over the last 12 months. A range of changes to feed-in tariff subsidies and pre-accreditation has hampered the industry – pushing some companies into administration.