Ed Balls said yesterday that a Labour government would use the £800m from the recent rise in the bank levy to pay for a reversal in the rise in VAT on petrol – which would cost, by co-incidence, £800m.
It’s a neat political attack line because it will lessen any public gratitude if the coalition freezes fuel duty in the Budget. (Ministers are widely expected to cancel or limit the proposed rise of inflation plus 1 per cent). Balls will be able to turn around on March 23 and ask why ministers don’t go further and carry out his VAT plan.
Two points are worth making, however:
1] This policy would only be fully-funded for one year, given that the £800m is a one-off. (The increase brings this year’s bank levy receipts in line with next year’s revenue). Will Balls admit that it would only be temporary?
2] Cutting VAT on road fuel would be illegal under EU Law, according to the Tories’ rebuttal this morning. They claim that the EU Directive on VAT states: ‘Member states may apply either one or two reduced rates. The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III’.
Annex III does not list road fuel, I’m told by one Tory source. Other amending articles do not permit a reduced rate to be applied to transport fuel (OJEU council directive 2006/112/EC of 28 November 2006 on the common system of value added tax, Article 98 and Annex III). There is a link here for those who are particularly interested.
UPDATE at 12.20pm: Ed Balls told this morning’s Labour press conference that there is an example of it happening before – in 1994. He also pointed out that Danny Alexander is seeking a derogation from the EU (over fuel duty) for the most remote highland areas.
But John Whiting, of the Chartered Institute of Taxation, tells me that at present there are not many derogations granted by the EU. They include Austria (for some communes), Portugal (for the island of Madeira) and Cyprus (for canisters of gas). In Britain there are only a few exemptions; domestic fuel, nicotine patches and women’s sanitary products.
Nationally cutting VAT on a less esoteric product such as petrol could be tricky. “It might be a bit difficult for petrol per se because I presume that Cyprus, for example, has a particular reason for that exemption,” Whiting tells me.
FURTHER UPDATE: Nick Robinson has the best summary of today’s rather exhausting Tory vs Labour debate over cuts and spending – pointing out that it suits Ed Balls to provide little detail of what his party would actually do in power.
Jim Pickard
Kiran Stacey