Treasury cools VAT backtrack reports as Number 10 confirms it won’t oppose amendment

HM Treasury has sought to cool speculation that it could be about to backtrack on plans to increase VAT added to solar panels.

There has been much speculation that the government would perform a U-turn and resist a decision from the European Court of Justice that found the preferential rates of VAT afforded to energy saving materials to contravene EU directives.

Reports emerged over the weekend that, amidst a purported Conservative rebellion over the issue, HMT would seek to retain the current rates.

But speaking to Solar Power Portal this morning, a Treasury spokeswoman confirmed that no such decision had been reached and added further context to a statement provided to The Financial Times on Friday evening.

The spokeswoman said: “Until the considerations are concluded the rates remain unchanged. The UK has applied the reduced rate on 11 energy saving materials since 2001, and that remains in place.”

However the statement was followed by the prime minister’s spokeswoman confirming that the government would not oppose an amendment to the Budget seeking to end the potential increase.

Shadow energy secretary Lisa Nandy subsequently celebrated the announcement, claiming that it amounted to abandoning the plans.

Although the developments emerging from Number 10 would appear to contradict HMT’s earlier statement, the department would offer no further comment on the issue.

Following the ECJ verdict last June, the government consulted on the issue in November and proposed to end the preferential 5% rate from 1 August 2016.

HMT looked all but set to confirm the higher rate during last week’s Budget, but the issue’s absence sparked rumours of a u-turn. These were exacerbated later in the week when further press speculation linked a number of Conservative MPs to a rebellion, many of whom are at the centre of a purported rift surrounding June’s Brexit referendum.

The Labour Party’s amendment, which has reportedly been supported by as many as 12 Conservative MPs, including the likes of Peter Lilley and Jacob Rees-Mogg, will be discussed tomorrow afternoon.

Another potential lifeline for the solar industry will be the European Commission’s VAT action plan, due to be published on Wednesday, which is expected to involve the potential devolution of some control over VAT directives to national parliaments.

Meanwhile Sonia Dunlop, spokesperson for the Solar Trade Association, which has lobbied extensively on the VAT front, said statements that were emerging from the government were "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 hope that Treasury will issue an official statement confirming the government’s intention as soon as possible, as HMRC is still in theory considering responses to the consultation on this. We also want to see the reduced solar rate of VAT in black and white in the Finance Bill later this year," she added.

This story has been amended from its original version to include commentary from the STA.