Select Committee on European Union Fortieth Report


VAT REDUCED RATES (9125/05)

Letter from the Rt Hon Dawn Primarolo MP, Paymaster General, HM Treasury to the Chairman

  Following my letter of 22 November 2005,[19] I am writing to inform you of the outcome of the negotiations on the VAT Reduced Rates dossier.

  At the meeting of ECOFIN on 24 January 2006, 22 Member States were able to agree to a compromise proposal presented by the Austrian Presidency, while Poland, the Czech Republic and Cyprus were given extra time to present their final position. The Presidency proposed a minimalist package which, if agreed, would extend until 2010 the labour-intensive services rates that had expired on 31 December 2005 and allow all Member States to apply to use these rates. In addition, the package envisaged a report, to be delivered by the end of June 2007, examining the impact of reduced rates on locally-delivered services, particularly focusing on job creation, economic growth and the internal market. Finally, a technical amendment would add a reduced rate for district heating, alongside the existing permitted reduced rates for gas and electricity.

  On 28 January, the Czech Republic and Cyprus confirmed that they agreed to the compromise, and, on 1 February, Poland also confirmed its acceptance of the package.

  As I have explained in my previous correspondence to you of 22 November and 28 September, this has been a dossier which has aroused strongly-held opinions on all sides of the debate. You will recall that while some Member States, such as the UK, argued for greater flexibility, others preferred a more harmonised approach. Member States were not, therefore, able to agree to any additional reduced rates. The reduced rate for district heating is, as l have mentioned above, a technical amendment that ensures that all Member States are able to apply a reduced rate for the main sources of domestic heat and power.

  The Government's priority in this review has always been to preserve our much-valued zero rates. I am pleased to say that we have achieved this objective.

15 February 2006

Letter from the Chairman to Rt Hon Dawn Primarolo MP

  Thank you very much for your letter of 15 February regarding Explanatory Memorandum 9125/05 which Sub-Committee A considered at their meeting on 28 March.

  The Sub-Committee are pleased to note that Finance Ministers agreed to give Member States the option to introduce a reduced rate of VAT on the labour component of repairs to older private dwellings and would be very pleased to know whether you intend to make use of these reduced rates.

30 March 2006

Letter from Rt Hon Dawn Primarolo MP to the Chairman

  Thank you for your letter of 30 March 2006, in which you ask whether the Government intends to take up the option of applying a reduced rate of VAT on repairs to private dwellings.

  This particular reduced rate was introduced into EU law as part of the labour-intensive services experiment, the objectives of which were to increase employment and reduce the shadow economy. The Government continues to take the view that our employment objectives are more effectively delivered through other means, such as the New Deal, and that a reduced rate of VAT would not have a decisive impact on the shadow economy.

  The Government has only introduced reduced rates where we are convinced that they offer the best-targeted and most efficient support for our key social objectives. It is our assessment that a reduced rate for repairs to private dwellings would not meet this test.

23 May 2006



19   Correspondence with Ministers, 45th Report of Session 2005-06, HL paper 243, pp 69-70. Back


 
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