The European Commission is taking the UK to court over its reduced VAT rate on energy-saving products.
The UK charges 5% instead of the standard 20%. Under EU VAT rules, discounts are only allowed for social policy reasons, not environmental reasons.
In a statement, the European Commission said: "Member States themselves unanimously decided on the list of goods and services that could benefit from a reduced VAT rate, and they also insisted that this list be strictly applied, with no room for manoeuvre or interpretation. This is important to prevent competitive distortions in the Single Market and to ensure a fair and level playing field between all Member States."
The Commissions added economic studies showed reduced VAT rates "are often not the best way to achieve policy objectives" and direct subsidies could be more efficient.