David Cameron has secured support from all other EU leaders, including German Chancellor Angela Merkel (right) for new flexibility on VAT which would allow the UK to introduce a zero rating on tampons
David Cameron begged EU chief Jean-Claude Juncker for permission to reduce the VAT on tampons yesterday as he tried to head off a major Commons rebellion.
In a humiliating encounter, the Prime Minister was forced to use a Brussels summit on the migrant crisis to plead for help on reducing British tax rates on female sanitary products.
Last night it appeared that Brussels was preparing to offer an olive branch on the issue next week by allowing Britain to scrap the 5 per cent VAT rate on tampons.
EU leaders signalled they would come to Mr Cameron’s aid on the issue, which has proved embarrassing for the Prime Minister and Chancellor as they try to convince voters to stay in the EU.
In a joint statement, they said they welcomed the intention of the European Commission to come forward with proposals that would ‘provide the option to member states of VAT zero rating for sanitary products’.
Mr Osborne said the deal showed the value of being a ‘powerful, confident voice’ in the EU. He added: ‘We said we’d fight for agreement, 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.’
But Matthew Elliott, of the Vote Leave campaign, said: ‘Even if the PM does win support for these proposals, they will take a long time to come into force, possibly years.’
Rebel MPs indicated that they would press ahead with a vote on the issue in the Commons, which could produce a rare Budget defeat for the Government.
They said the row highlighted the extent to which Brussels can overrule British sovereignty. Campaigners have fought for years to have the so-called tampon tax removed, arguing that sanitary products are a necessity, not a luxury, and should therefore not attract VAT.
But under EU rules, the Government has been unable to scrap the tax. Last year, George Osborne courted controversy by announcing that the £12million a year raised from the tax would be given to women’s charities.
But campaigners say the tax should be scrapped altogether rather than forcing women to fund charitable projects that should be paid for out of general taxation.
UK officials said the European Commission has signed up to the change and will put forward proposals next week. Mr Cameron decided to force the issue by raising it at a summit of the European Council in Brussels
INHERITANCE TAX UPSURGE
The Treasury is on track to pocket millions extra from inheritance tax receipts after a spike in winter deaths.
The flu virus struck particularly hard last year because the vaccine was less effective than previous versions.
That led to the highest number of winter deaths since 1999, according to the Office for National Statistics. Most of those affected were over 75.
In a report, the Office for Budget Responsibility said more estates had been dragged into the inheritance tax net by soaring house prices. It now expects families to hand over £200million more to the Exchequer than the watchdog had originally forecast.
This will help the Government rake in a huge £4.6billion in death taxes this year – a fifth more than it collected in 2014-2015.
The tax was originally meant to be paid only by the wealthiest families. But runaway property prices have ensured that millions of middle class homeowners now face the levy.
Currently, the tax is charged at 40 per cent on assets above £325,000 for a single person or £650,000 for a married couple. From 2017, this will rise to £500,000 for individuals and £1million for couples with a family home.
2 MILLION PUNISHED BY 40P RATE
Nearly 2million workers have lost out because George Osborne has not raised the 40p income tax threshold in line with inflation, experts said yesterday.
The Chancellor used the Budget to raise the point at which the higher rate kicks in from £42,385 to £45,000 in April 2017.
The measure will hand an average £400 tax cut to hundreds of thousands of middle class families.
But the Institute for Fiscal Studies think tank said the 40p threshold would have been £54,405 in 2017-18 if it had gone up with inflation since Mr Osborne became Chancellor in 2010.
Freezes or reductions of the threshold since 2010 have acted like a stealth tax.
Righer rate income tax payers, of whom there were 1.7million in the 1990s and 3million in 2010, now number 5million.
The IFS claims it would have hit 5.4million if the Chancellor had not taken action in the Budget this week, meaning 400,000 people have been saved from the higher rate.
It said that a rise in line with inflation would have seen just 3.2million paying the 40p rate or 45p additional rate in 2017-18.
More than 300,000 people have signed a petition calling on the Government to act. Last night, sources at the European Commission indicated that a long-running review of VAT rules in the EU would grant the UK permission to apply a zero rate of VAT to sanitary products.
MPs have tabled an amendment to the Finance Bill that would compel the government to unilaterally scrap the tax in defiance of EU law.
Labour MP Paula Sherriff urged the Chancellor to accept her cross-party amendment, adding: ‘If he is really on the verge of an agreement, that should be reflected in this year’s Finance Bill with a clear timetable for abolition of the tax.
‘My amendment would allow that, so I invite the Chancellor to announce now that he will accept the amendment next week.
‘If he refuses to act, I will seek to put it to a vote and I believe I will get strong support from across the House.’ Tory MP Anne-Marie Trevelyan said the row highlighted the extent to which Brussels can overrule British sovereignty.
She added: ‘One of the key reasons that I am voting to leave is because we are losing more and more control to the EU.
George Osborne (pictured visiting a school in Yorkshire this morning) said that Britain was on the verge of a deal with Brussels which would allow it to scrap the ‘tampon tax’, although opposition from the French may scupper the plans
Superdrug has devised this Inforgraphic detailing where is most affected by the tampon tax with Hungary paying the most in VAT
‘The people we elect should be responsible for setting the taxes in this country – not unelected EU judges and bureaucrats. It is a fundamental principle of democracy that there should be no taxation without representation, which is what we now have.’
Ukip leader Nigel Farage said it was humiliating to see British leaders ‘on their knees’ in Brussels pleading for permission to set tax rates in the UK. He added: ‘It is pathetic for our country.’
The EU jealously guards rules on the application of VAT, partly because it gets some of its revenue from the tax. About 0.3 per cent of VAT revenues across Europe are sent to Brussels to fund the European Commission.
Member states are barred from cutting VAT below 5 per cent on products on which it is levied.
When the UK joined the EU in 1973, VAT on tampons was levied at the full rate of 17.5 per cent, because Parliament had classed them as a ‘non-essential luxury’ item.
Former Labour Treasury minister Dawn Primarolo cut it to 5 per cent in 2000, saying it was ‘about doing what we can to lower the cost of a necessity’. But successive governments have been unable to go further and scrap the tax altogether.
The European Commission last night said it was working on two options that would allow member states more flexibility over the setting of VAT rates.
A Commission spokeswoman said that under current rules, member states were not allowed to apply a zero VAT rate to a product unless all other member states agree.
‘Most Member States tax sanitary products like tampons at around 20 per cent or more,’ she added.
REAL LUXURIES EXEMPT FROM TAX
Luxury items ranging from ostrich meat and alcoholic jellies to boats and even helicopters are exempt from VAT.
But sanitary products qualify for the tax because they are said to be ‘non-essential, luxury’ goods.
There are three VAT rates in the UK: the 20 per cent standard rate, which applies to most goods and services; a reduced rate of 5 per cent; and zero-rated, which includes food and drink.
In 2000 the rate on sanitary items was dropped from the old top level of 17.5 per cent to 5 per cent following a campaign by Labour MP Dawn Primarolo.
But the Government has said it cannot go any lower because of EU rules which forbid scrapping VAT once it has been imposed or introducing new zero-rated items.
Five per cent is the lowest rate allowed under Britain’s agreements with European partners.
A wealth of luxury groceries fall among zero-rated items because all food and drink is exempt.
They include candied peel, herbal tea, exotic meat such as horse, ostrich, crocodile and kangaroo, and ready meals.
Also on the zero VAT list are slimming meal replacement products, savoury snacks and alcoholic dessert jellies.
Helicopters and aircraft used for passenger and freight transport – but not private use – and boats also qualify, although vessels used for recreation or pleasure do not.
Other 5 per cent items include products to help people stop smoking.