VAT and the EU

Two words guaranteed to strike fear into the heart of any good believer in small, efficient government!


Tewkesbury_floodsFurther to our recent work with the Cut the VAT coalition on the amount of money the Treasury made from the 2007 floods, the excellent EUReferendum blog has waded in (apologies for the pun) to criticise us for not mentioning the EU, which of course has control of VAT.


I could reassure Helen and Richard by pointing to my rather solid eurorealist credentials, but rather than talk shop, I'll make it clear.


Yes, I'm well aware (and the Cut the VAT coalition is, too) that the EU controls VAT rates, and that it is a difficult job wrangling a VAT reduction from the other member states. As it happens, I personally think it is wrong that our democratically elected Parliament does not have control over the taxes levied in this country.


That does not change the fact that reducing VAT would be a good thing, and there is a strong case for doing so - as well as a strong feeling in the relevant industries that it would be beneficial. Ideally I would like to cut it to 0%, but the EU forbids that - something I resent, but not something we can get around on this issue.


In terms of whether we are "blaming the wrong government", I think it is obvious that if you want a reduction in this application of VAT, the first people you need to get to agree are the British Government. It may be difficult to get permission from the EU to do it, but it is absolutely impossible without the British Government on side. That means they must be persuaded before we can get anywhere.


There are carrots to offer them - a VAT cut will help the housing stock, encourage energy saving measures and increase VAT revenues - but you also need a stick, and that stick involves embarassing them as the VAT collecting agents. Using VAT, the Treasury raked in huge amounts of money from the floods and levies taxes on disabled people for essential alterations to their homes - both disgraceful activities that they should be ashamed of.


As it happens, I think the case is so strong - for economic, housing and green reasons as well as those of political embarassment - that there is a decent chance of success on this one. The EU has already dipped its toe in the water by trialling a reduction on the Isle of Man, which resulted in an increase in the amount of money raise in VAT revenues, so they've shown some interest in the idea already.


And from Richard and Helen's eurorealist point of view, what is the worst case scenario? A strong case is built up, good media coverage rallies public support for a VAT cut and a wide coalition from industry is on side. I would like to see that result in lower VAT, but if it doesn't and the campaign is rebuffed by a Government unable to control its own taxation as a result of the ceding of powers to the EU, then it will make even clearer the sorry state of sovereignty in this country to an influential collection of organisations. The Government and Treasury officials come under pressure to do something popular and beneficial and are frustrated by the fact that they can't grab those popularity points because they've given the power to do so unilaterally away.


I want to see this tax reduced, and I think this is the best way of going about it. If the bare worst that can happen is that the campaign highlights the fact that our democratically elected Government has been emasculated and no longer has control of important tax rates then surely that is a helpful thing to the eurosceptic cause, too. I hope Richard and Helen will be signing up at

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