UK presidency of EU must deliver on VAT

A UK business pressure group says it is delighted the UK Government is finally prioritising the issue of VAT following a meeting of European Finance Ministers.

The Ecofin Council meeting attended by the Chancellor Gordon Brown saw the Luxembourg Finance Minister announce that the two forthcoming Presidencies - Luxembourg’s and the UK’s starting in July 2005 - would treat VAT as a priority.

The Forum of Private Business (FPB) Chief Executive Nick Goulding said it is critical the Government backs a system of reduced VAT on labour intensive industries.

The Treasury has to date refused to participate in a European Commission study for reducing VAT levels for labour intensive services sectors,’ he said. But this announcement is a major step forward for manual labour intensive industries such as builders, hairdressers, painters, decorators and window cleaners.’

There is a real problem in these industries with businesses operating below the VAT threshold gaining a competitive advantage over those above it. For too long there has been a temptation to work ’cash-in-hand’ without declaring earnings to the taxman.’

The EU Pilot scheme, offering a reduced VAT level for labour intensive industries, has been very successful in other Member States in encouraging businesses out of the black economy and should be examined in the UK. This has clear benefits for the Government as increased take up in VAT means more revenue for the Treasury.’

If businesses charge a lower rate of VAT this will immediately ease the taxation pressure on the business. It will help small firms invest more in their business, employ more people, lower prices and increase business profitability - all to the benefit of the UK economy.

General Secretary of the National Hairdressers’ Foundation, Ray Seymour, said, This is welcome news. I hope the European Union finds time to implement the positive results that have arisen from the experiment for a lower rate of VAT on Labour Intensive Industry.’

In the Hairdressing sector this demonstarted that a lower rate stimulated economic activity, created more employment and reduced costs to clients. A reduction in VAT to Labour Intensive personal service industries and to those industries providing services direct to the home would be a major step to undermining the shadow economy.