EC could ramp up VAT

ECPA

The European Commission has issued new proposals which would see VAT slapped on a range of things from essential food to books and children's clothes - which are currently free from VAT. There would also be a rise in the 5% VAT rate on household fuel. The changes are expected to add about £800 a year to the cost of the basics for a typical family.

So why are they suggesting these changes, and how can they dictate what tax we pay?

Simplification

The change is part of an EC move to make all sales taxes the same across Europe. The idea is to make it easier to trade across the continent, and reduce some of the complexity and red tape. The boffins behind the suggestions say it would boost business across Europe by getting rid of a complex system which currently features an incredible 27 different types of sales tax.

Increases

In order to make all sales tax the same, the exemptions would be removed in every country. In the UK that means basic food and fuel would be among those things that are hammered. At a time like this, when the cost of groceries and household bills is already pushing so many family budgets to the brink, this could deal the killer blow.

There would also be an end to tax break on tap water, train and bus travel, books and newspapers. For many this seems like too high a price to pay for Europe-wide uniformity.

Two flaws

The Commission says that most of the money taken through the axing of exemptions could be given back by making the overall sales tax lower. However, there are two problems with this. The first is that even the EC admits that people would be worse off, because the payback wouldn't be as high as the extra tax on essentials.

The other issue is that people on lower incomes spend a far higher proportion of their income on these essentials. It means that currently a large proportion of their expenditure is not taxed - and the changes would bring all of it into the tax regime. It would effectively punish lower earners disproportionately.

The experts behind the proposals say that it would then be up to individual governments to even things back out through the benefits system. However, can you see George Osborne increasing state payouts to make things fairer?

What right?

Of course Brussels doesn't really have the right to set our tax rates. However, if the changes come into effect, we will come under increasing pressure to conform to the rules or miss out on Europe-wide business deals.

So what do you think? Is it worth it for simplification? Or is the future of Europe so bleak that this sort of tinkering is a pointless exercise that will cost a fortune to process and come to nothing in the long run anyway? Let us know in the comments.
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