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Industry leaders have attacked the EU鈥檚 decision to outlaw Britain鈥檚 reduced 5% VAT rate on energy-saving products such as insulation and solar panels, calling it 鈥減erverse鈥� and 鈥渉ypocritical鈥�.

The European Court of Justice ruled last week that Britain鈥檚 longstanding reduced rate on the supply and installation of energy saving products breached its VAT Directive, which only allows energy saving products to use a reduced rate in social housing projects, or as part of a social policy.

It means millions of households could have to pay the usual 20% rate when installing insulation, solar panels, wind turbines, controls for central heating and wood-fuelled boilers.

A government spokesperson said: 鈥淭he government will study the judgment carefully and consider next steps.鈥�

Dave Sowden, chief executive of the Sustainable Energy Association (SEA), accused the EU Commission of 鈥渢he most astonishing hypocrisy鈥� and said the ruling was 鈥減erverse鈥�.

Sowden added that the EU鈥檚 decision is 鈥渃ontrary to almost every principle and policy created to reduce consumers鈥� energy consumption, cut emissions and help boost economic recovery across the EU.鈥�

John Sinfield, Northern Europe managing director for Knauf Installation, slammed the ruling as 鈥減erverse鈥� and 鈥渘onsensical鈥� and said it was a 鈥渃ontradiction where consumption of a valuable resource is rewarded and efficiency penalised鈥�.

Pedro Guertler, head of research at the Association for the Conservation of Energy (ACE), criticised the European Court of Justice for taking a 鈥渧ery narrow interpretation鈥� of the VAT directive and said the ruling meant 鈥渆verything will cost 14% more.鈥�

Richard Twinn, policy adviser at the UK Green 好色先生TV Council (UKGBC), said the ruling was 鈥渦ltimately bad news鈥� for the UK.

He added that the ruling would 鈥減ush up the cost of ECO, reduce the measures that can be funded through the Green Deal, and could deter people from installing solar PV and heat pumps.鈥�

In a statement, the European Court of Justice ruled: 鈥淲hile it is true, as asserted by the UK, that a policy of housing improvement may produce social effects, the extension of the scope of the reduced rate of VAT to all residential property cannot be described as essentially social.鈥�