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Solar Energy: VAT

Volume 605: debated on Thursday 11 February 2016

17. Whether the Secretary of State has had discussions with the Chancellor of the Exchequer on proposals to increase VAT on solar panels. (903607)

A recent European Court of Justice ruling found that the reduced rate of VAT on certain “energy saving materials” was in breach of EU law. As a result, Her Majesty’s Revenue and Customs recently consulted on changes to the rate of VAT and is considering the responses. If the rate of VAT does change, we will consider the options for how to maintain a suitable rate of return for investors under the feed-in tariff.

May I, along with the Minister, wish my hon. Friend the Member for Bolsover (Mr Skinner) a happy birthday? I am so pleased that he is still winning. He is fantastic.

Following on from the question from the hon. Member for Cheltenham (Alex Chalk), the proposed hike in VAT would raise the typical cost of a 4 kW residential solar PV system by nearly £1,000, even though industry experts advise us to retain the lower tax rate for solar under the recent ECJ judgment. The Government are keeping the lower rate for heat pumps, biomass boilers and combined heat and power units. The same should surely apply to solar PV thermal; otherwise we will have the perverse situation in which electricity generated from fossil fuels is taxed at 5% VAT, while homeowners have to pay 20% VAT for their own renewable energy. Can the Minister not persuade the Chancellor to reverse this tax hike and, if she cannot, will she make commensurate increases?

I want to be clear with the hon. Lady that this is not the Chancellor’s choice. As I have made very clear, this is an EU Court ruling; it is not our choice. In the event that we have to impose an increase in VAT, we will look at the returns to investors under the feed-in tariff.