This article was first published on CapX.
In March 2016, Britain appeared to have scored a rare victory in Brussels. The deeply unpopular and unfair “tampon tax” – the 5 per cent VAT applied to women’s sanitary products – was finally going to be abolished, as the EU announced it would loosen the restrictions which forced member states to tax the products as “luxury, non-essential items”.
Except this wasn’t actually the case. The EU had merely declared its intention to put forward proposals for reforming VAT rules, which would include allowing Member States to reduce VAT on sanitary products to zero. Two months later, when the EU produced a new round of VAT reform suggestions, these were nowhere to be found. Economy Commissioner, Pierre Moscovici, said the proposals would come “this year”. More than one year on, there has still been no progress; the EU now says the changes will come in 2018.
Such is the sclerotic nature of the EU. In normal democracies, popular reforms such as abolishing the tampon tax would have been quickly pushed through. There has, for some years now, been significant political will in Britain to abolish the tax. Yet in the indifferent, rigid and unaccountable world of Brussels politics, this reform has been held up – even though all Member States apparently support it.
VAT, though, is an EU policy, introduced here in 1973 when we joined the EEC, replacing a sales tax on luxury goods called “Purchase Tax”. Hence our powerlessness. Under further rules imposed in 1992, EU countries cannot reduce VAT below 15 per cent, except for on a handful of products, which can be reduced to a minimum of 5 per cent. Only products which had no VAT before 1991, and which have not had VAT applied to them since, are exempt.
With Brexit, we will be able to take back full control over our tax policy. The Government will be free to reduce VAT rates as it sees fit. As Eurosceptics argued during the referendum campaign, the simplest way to abolish the tampon tax would be to leave the EU.
The Government need not stop at tampons, however. Other essentials could also have VAT reduced or abolished, giving a boost to the less well-off who spend a greater proportion of their income on them. Take energy bills. These were originally exempt from VAT, until an 8 per cent rate was imposed during John Major’s premiership in 1993. This has since been reduced to 5 per cent, but as long as we stay in the EU, it can go no lower.
After Brexit, the Government will be able to abolish VAT on energy bills altogether, giving a tax cut to ordinary families across the country. Likewise, mobility aids for the elderly and child car seats are taxed at 5 per cent, and could also be exempted.
There are also areas where VAT rules are bizarrely complex, such as hot takeaway food. The infamous “pasty tax” controversy in 2012 stemmed from an abortive attempt to simplify the rules on such products. Currently, pasties which are kept warm after being taken out of the oven should have 20 per cent VAT added, but pasties which are left to cool are exempt, regardless of how hot they are upon being sold. Unsurprisingly, a 2013 survey by the Cornish Pasty Association found widespread confusion.
After Brexit a simple way of resolving this bizarre scenario, without creating yet another “pasty tax” furore, would be to abolish VAT on hot takeaway food altogether.
The case is clear. When we get Britain out of the EU, we will be able to remove one of the more bizarre EU intrusions into our domestic affairs. We will take back control of our tax policy, and be free to create a VAT regime which is fairer, simpler, and no longer beholden to the whims of EU leaders.
It is one of many Brexit opportunities which the Government would do well to exploit. Business as usual just won’t do any more.
Joseph Hackett is a Research Executive at cross-party grassroots campaign Get Britain Out