Much as though I applaud David Cameron’s plan to give struggling small companies a VAT holiday, a rather large obstacle occurs to me. Wouldn’t this be illegal under European Union law? The Sixth EU VAT Directive mandates all states to apply VAT the same way as long as the main rate is a minimum of 15% and the discounted rate at least 5%. Room for manoeuvre was tightened to almost zero two years ago in the EU Recast Sixth Directive. You don’t mess with this, as the Blair government found out when it lost its fight to grant companies the right to reclaim VAT spent on fuel.
So how will Cameron play this? Perhaps it won’t be an issue for some reason – and if there are any CoffeeHousers who know why, I’d be grateful for clarification. Because the EU VAT law (full text here) seems pretty proscriptive to me. Perhaps Cameron intends doing a Chirac, saying “okay, sue me, see you in court in four years”. Or perhaps Tory policymakers are not as aware as they should be of the way the EU now ties the hands of British governments. Take, for example, Cameron’s admirable plans to abolish school expulsion tribunals. It would be immediately sent to Strasbourg as it would violate Article Six of the ECHR (right to a fair trial). He wanted to cut VAT on bicycles and wind turbines back in April, and Toby Helm pointed out then that he’d need this unanimously agreed in the EU. Again, I’m all in favour of sticking two fingers up to EU laws which a democratically-elected British government considers not in the interests of the country. If Cameron is planning such a fight with Brussels, all power to him. I just hope he’s thought this through.
Comments