10. REDUCED VAT RATE ON LABOUR INTENSIVE
SERVICES (6110/99, COM(99)62)
Letter from Dawn Primarolo MP, Paymaster
General, HM Treasury, to Lord Tordoff, Chairman of the Committee
The above proposal was the subject of an Explanatory
Memorandum dated 30 March and was cleared from scrutiny by the
Committees in both Houses in April. Since then there have been
lengthy discussions at EC level and I am writing to update you
on developments.
The proposal is to allow Member States to apply
a reduced rate of VAT on an optional, experimental basis, to certain
local, labour intensive services as a means of stimulating employment.
Following examination at Council Working Group level, a number
of amendments to the draft Directive have been suggested and incorporated
into a revised text produced by the Finnish Presidency for discussion
at the Committee of Permanent Representatives (COREPER) this week.
The aim is to reach agreement in time for adoption of the measure
at the meeting of EC Finance Ministers (ECOFIN) on 8 October.
While there are still a number of outstanding issues and we do
not yet have a final text, Member States will come under considerable
pressure to agree the proposal urgently and I felt I should alert
you now the revisions which are proposed.
The key changes from the original proposal are
set out in the Annex to my letter, The UK welcomes the majority
of these. We support in particular the deletion of the clause
providing for early termination of experiments by Qualified Majority
Voting (QMV), about which we had considerable concerns. We also
support the inclusion of a limited list of qualifying services
in order to reduce the risk of competitive distortions. The UK
was instrumental in suggesting an amendment giving Member States
some flexibility in a start date for introduction of a reduced
rate and we can accept the requirement for the Commission to produce
an evaluation report at the end of the experimental period.
Because of the timing of the EC discussions,
a revised proposal is unlikely to be available for consideration
by the Scrutiny Committee before a decision needs to be taken
at ECOFIN. I do not intend that the UK should block adoption of
the proposal and if a decision is required, I hope you can agree
to the UK signalling its acceptance. I will of course report the
outcome of this week's discussions as soon as possible.
8 October 1999
Letter from Lord Tordoff, Chairman of
the Committee, to Dawn Primarolo MP, Paymaster General, HM Treasury
Thank you for your letter of 8 October, bringing
us up to date on developments with this proposal. We understand
that political agreement was indeed reached at ECOFIN on the basis
of the revised proposal. We should be glad to know whether the
Government intends to take advantage of the revised provisions
in the United Kingdom and if not, why not.
26 October 1999
Letter from Dawn Primarolo MP, Paymaster
General, HM Treasury, to Lord Tordoff, Chairman of the Committee
Thank you for your letter of 26 October about
the Government's position on a reduced rate of VAT for labour
intensive services.
Council Directive 1999/85/EC which provides
for Member States to apply a reduced rate for a limited number
of services was finally adopted on 22 October. As you are aware,
the objective is to seek to boost employment and create job opportunities
by stimulating demand through lower consumer prices. The Government
believes however, that unemployment can be tackled more effectively
in the UK by our targeted schemes to equip people with skills
for work which were introduced in the last two Budgets.
Any decision on the use of an experimental reduced
rate in the UK can in any case only be taken by the Chancellor
in the context of the next Budget. Member States wishing to participate
in the experimental arrangements were required to notify the Commission
by 1 November but, to preserve our options if the Chancellor were
minded to apply a reduce rate, I wrote to Commissioner Bolkestein
before the deadline explaining the UK's position and the difficulties
posed by the constraints of the Budget cycle. I believe that the
UK has therefore met the requirement of the new Directive to notify
the Commission and that a proposal for approval of a UK application
could be circulated later, should we decide to proceed.
I hope this helps to clarify the position.
20 January 2000
Letter from Lord Tordoff, Chairman of
the Committee, to Dawn Primarolo MP, Paymaster General, HM Treasury
Thank you for your letter of 20 January, which
Sub-Committee A considered at its meeting on 15 February. We note
that the Government's reasons for not making use of the power
to apply a reduced rate of VAT at present, and we shall be interested
to know if the Government does decide to enter this experiment
in the future. We have cleared document 5016/00, which authorises
those countries which have applied to proceed with their experiments.
17 February 2000
Letter from Lord Tordoff, Chairman of
the Committee, to Dawn Primarolo MP, Paymaster General, HM Treasury
I wrote to you on 17 February, telling you that
we had cleared document 5016/00, and that we should be interested
to know if the Government decided in the future to make use of
the provision enabling it to apply a reduced rate of VAT on labour
intensive services. We have since seen press reports claiming
that the Government intends to reduce VAT on converting derelict
buildings, and we should be interested to know in due course whether
it is intended that this should be done through this particular
experiment.
15 March 2000
Letter from Dawn Primarolo MP, Paymaster
General, HM Treasury, to Lord Tordoff, Chairman of the Committee
Thank you for your letter of 15 March 2000 about
the Government's position on applying the experimental reduced
rate of VAT for labour intensive services to the conversion of
derelict buildings.
In my letter of 20 January 2000 I explained
that the objective of the experiment is to seek to boost employment
and create job opportunities by stimulating demand through lower
consumer prices. The Government does not intend to introduce the
experimental reduced rate, believing that unemployment can be
tackled more effectively in the UK by our targeted schemes to
equip people with skills for work.
I hope this helps to clarify the position.
28 March 2000
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