Saturday, July 07, 2007

Trying it on… again

Even since VAT was first introduced in 1972, the (now) EU commission has been trying to coerce member states into cutting back the plethora of reduced rates and exemptions, all in the name of that great God harmonisation.

Year after year, however, the member states – who still retain a veto in this area – have resisted the moves but, in the nature of the beast, this has not stopped the commission trying yet again.

This time, however, it is trying a different tack. Gone is the word "harmonisation" – a red rag to many bulls – and in comes "simplification", justified in part by the need to reduce "compliance costs" imposed on businesses.

And rather than come straight out with its agenda, the commission cloaks it in a high-flown announcement that it is launching "a political debate on how to simplify current EU legislation".

Simultaneously, the commission has published a COM final but all we get from the press release (link above) and that document is that there is "a real need for a simplification and rationalisation of the current VAT rates structure, and in particular the reduced VAT rates."

To add reassurance, the commission stresses that "no concrete proposal" is made for new categories of products or services, "given the need for prior political consideration by Member States." Furthermore, it is careful to remind readers that, "The application of VAT reduced rates is a very sensitive issue in an area where the unanimity principle forces all stakeholders to be inclined to compromise."

This is so cuddly and fluffy that few would disagree with it, so it is not until you look at the "independent" economic study which the commission has also published (at a mere 103 pages), that you begin to see what the game really is. Very much on the cards is the prospect of abolishing the raft of zero rates – such as VAT on food and childrens' clothing, and the standardisation of VAT at a single rate.

For once, the few media sources that have picked up the story (including today's Telegraph) have seen through the fluff. The Evening Standard for instance, runs a headline, "Brussels wants to put VAT on food", Channel 4 News headlines, "Government vow to defend VAT rights" and the Guardian tells us that, "UK fights to keep lower VAT".

The Standard goes slightly OTT having Gordon Brown "prepared to use Britain's veto to block the move", with "the cost of children's clothes, books and food" set to "soar under plans drawn up in Brussels". It adds that the move is "certain to anger Gordon Brown as the refusal to tax necessities has always been a key principle of Labour policy".

Nevertheless, the cat is out of the bag, although it will be some years before anything substantive happens – firm legislative proposals are not expected until 2009. Between then and now, the commission is presumably hoping that everyone will go back to sleep as it works behind the scene on the "stakeholders", to finagle a "compromise".

With the fabulous Kitty Ussher in place in the Treasury – and the distinctly Europhile bent to Brown's Cabinet, who is to say that, this time, the commission might not succeed – especially when there is a chance of Brown extracting even more money from the taxpayer?

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