The controversial legislation comes as parliament begins debating changes to the Climate Change Act 2008 that it plans would reduce net-zero carbon emissions by 2050.
The Treasury aims to push through legislation that will make amends to the reduced rate on the installation of ESMs – currently 5%.
ESMs include solar panels, water and wind turbines, biomass boilers (fuelled solely by wood, straw or other vegetal), and micro-combined heat and power units.
However, the plan has been met with criticism from renewable energy advocates.
“The VAT proposals will create a barrier to British homes and businesses who are seeking to take action on climate change and reduce their bills by installing solar with battery storage,” said Dr Nina Skorupska, chief executive of the Renewable Energy Association (REA).
The REA, alongside challenger energy supplier Good Energy, has called for the chancellor to rescind the legislation, which both believe will set back the installation of solar panels with battery storage in homes and businesses by years – despite falling costs.
In his explanation for the changes to the Climate Act yesterday, Chris Skidmore MP suggested that the “cost envelope” accepted by parliament for an 80% reduction in carbon emissions in 2008 is now the same as that for 100% “due to falling costs”.
However, the legislation will mean the 5% reduction for water or wind turbine installation will no longer apply, meaning these will now be taxed at the usual rate of 20%.
The same applies to the installation of any ESMs where materials exceed 60% of the total cost of the installation – however a reduced rate will still apply to labour costs.
The reduced rate will also still apply for individuals over 60 years old and those “getting certain benefits”, or in instances where the supply is to a housing association or buildings solely for relevant residential purposes (such as care homes, children’s homes or hospices).
REA also highlighted that, by way of comparison, coal sold for domestic use continues to be subject to a reduced VAT rate of 5%.
“The government should be seeking to be a world leader in renewable technologies, but it’s damaging our successful solar industry and putting green jobs at risk,” said Juliet Davenport, CEO of Good Energy.
Dr Skorupska added that, because 84% of the public supports renewable energy and 80% views climate change as a concern, “the government should be doing all it can to install these technologies, rather than enacting barriers”.
An HMRC spokesperson said, “The government is proposing changes that retain as much of the VAT relief as possible for energy-saving materials while ensuring compliance with EU law.”