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Last Updated: Saturday, 29 July 2006, 13:15 GMT 14:15 UK
VAT rules hit Energy Saving Trust
Fan in a kitchen (Image: BBC)
The not-for-profit group offers advice to households
A UK body which advises households on reducing energy consumption says it may have to cut jobs and cancel projects because of a new tax ruling.

The Energy Saving Trust has been told government grants after May of this year will become liable for VAT.

The ruling from HM Revenue and Customs came after the government launched its energy review, an initiative in which the trust is expected to play a role.

HMRC said an appeal by the trust was being considered.

'Impact on services'

But Treasury sources have told the BBC the independent, not-for-profit organisation will have to be treated in the same way as other similar groups despite the environmental benefits it may deliver.

The Energy Saving Trust believes this will have a direct impact on the services they deliver.

Unless this matter is resolved urgently, the Treasury is in danger of trashing Defra's efforts to control carbon emissions
Peter Ainsworth

Chairman Edward Hyams told the BBC: "We collect about 25m that we spend on energy efficiency measures and reducing carbon, and we will now take about 5m of those and return it back to the Treasury.

"And that will have to result in a reduction in programmes and a reduction in activity unless the situation changes."

In a statement HMRC said: "Longstanding VAT rules mean grants paid to fund bodies providing services for the wider public good are not liable to VAT.

"However, VAT still has to be paid on goods and services purchased by such bodies."

However, shadow environment secretary Peter Ainsworth called the move "extraordinary".

"This is a serious failure of joined-up government and demonstrates that Gordon Brown is unable or unwilling to support vital measures to tackle climate change," he said.

"Unless this matter is resolved urgently, the Treasury is in danger of trashing Defra's efforts to control carbon emissions."

Liberal Democrat trade and industry spokesman Ed Davey said it was "outrageous" VAT exemption for the trust was being dropped "just when we're being threatened with blackouts".

"Energy efficiency is the quickest, cheapest and most effective way to meet Britain's energy needs and cut carbon emissions, so it is utter madness that the government is slashing the Energy Saving Trust's budget," he said.

"This is yet one more example of Labour's incompetence over energy."

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