With Brussels due to publish proposals for a VAT shakeup within days, the prime minister raised the issue with Jean-Claude Juncker, the European commission president, making clear he favours letting member states set the tax at zero for certain products.
At a session on the economy, Cameron got all 27 other EU leaders to agree that they “welcomed the intention” of the commission to propose flexibility on zero rating for VAT on some products.
George Osborne, the chancellor, claimed victory for the government, arguing it was a sign of what the UK could achieve by engaging with the EU, although the VAT shakeup was already planned by the commission.
“We heard people’s anger over paying the tampon tax loud and clear. We said we’d said we’d fight for agreement to reduce the VAT rate to zero, and tonight all European leaders have welcomed our plan to do just that. We’ve achieved what no British government has even tried to achieve. “It just shows how Britain can make a case for a reform that will benefit millions as a powerful, confident voice inside a reformed EU.”
UK officials said the European commission had signed up to the change and would put forward proposals next week. A formal announcement is expected on Wednesday, though the implementation of new rates may take some time to be approved.
The proposals will come just in time for the UK government, which was facing an attempt by Labour and Eurosceptic MPs to force a vote in favour of scrapping the so-called tampon tax in a budget debate in the House of Commons on Tuesday.
Labour MPs and Tory Eurosceptics are banding together to back an amendment by Paula Sherriff, the Labour MP for Dewsbury and Mirfield, aimed at allowing MPs to remove the 5% VAT levied on sanitary products – something EU rules forbid.
In an attempt to avoid a humiliating defeat, George Osborne, the chancellor, stressed on Thursday morning that the EU was “on the verge” of a deal to allow him to strike down the tax, something he omitted to mention in his budget announcement on Wednesday, before the scale of the likely rebellion became clear.
Under one option to be put forward by the European commission, member states would be able to cut rates on goods or services provided that reduced or zero rates had already been granted to another member state. Since Ireland has a 0% rate for tampons, that same possibility would be extended to all member states, including the UK
Under the second option, countries would be free to adopt rates on a selection of goods and services, provided this did not create risks of unfair tax competition or unduly complicate the VAT system. Both options would allow the UK to scrap VAT on sanitary products, but would need to be agreed by all member states.
Following the agreement, Sherriff said she now wanted the government to now give in and accept her amendment. “We expect this decision to be reflected in this year’s Budget, with a clear timetable for abolition of the tampon tax in the UK. My amendment would allow that, so I hope that the chancellor will announce now that he will accept it. There is no excuse not to act now, and reform is long overdue - 2017 should be a deadline not an aspiration. In the meantime, the chancellor should guarantee that essential women’s services won’t depend on a tax on essential women’s products.”
Speaking ahead of Thursday evening’s agreement, Osborne told the BBC Radio 4 Today programme he “perfectly understood” people’s anger over the 5% VAT rating on tampons and said he was hoping for a breakthrough within the next few days. Treasury minister David Gauke wrote to the commission in November, setting out the UK’s call for change.
In his autumn statement, the chancellor had sought to quell anger about the issue by setting aside the revenue from the VAT to be spent on causes that benefit women, and in his latest budget he allocated £12m for those causes, including domestic violence charities.
On Thursday night it was not clear whether the charities involved would be compensated for the loss of this income once the 0% rating is in place.
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