Britain's discount VAT rate on such goods breached EU legislation, the Commission said in a statement.

"Under EU VAT rules, member states can only apply reduced VAT rates to a limited number of goods and services," it said, adding that those did not include the supply and installation of energy-saving materials.

The Commission gave Britain two months to bring its legislation into line, or be sued in the EU Court of Justice.

Britain applies a lower rate of VAT on the supply and installation of solar panels, wind and water turbines, controls for heating and hot water systems, as well as insulation, among other materials.