Tail wagging dog Boriss great Brexit U-turn on VAT finally unmasked as EU vice grips

Rishi Sunak: VAT cut would 'disproportionately benefit wealthy'

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However, Tory MP Sir John Redwood believes the Government should nevertheless take the initiative by passing domestic legislation enabling it to make the necessary changes – regardless of Brussels. Victoria Hewson, Head of Regulatory Affairs at the Institute of Economic Affairs (IEA) think tank, was commenting after the Prime Minister last month backtracked on a pledge to cut VAT from energy bills in line with a pledge he made during the Brexit referendum campaign in 2016.

EU rules state that once goods or services have been subject to VAT, they cannot be exempted, nor can the rate be reduced without the unanimous agreement of all members of the EU27.

Where the UK is concerned, the complication arises because Northern Ireland is still subject to EU laws when it comes to VAT in accordance with Annex 2 of the Protocol.

Ms Hewson explained: “The tail is wagging the dog. Even if the Government wanted to, it would not be permitted to scrap VAT on energy in NI because the EU rules that NI is still subject to do not allow it.”

Asked whether the UK Government could have pressed on regardless in order to test the EU’s resolve, she added: “This could have been an ideal opportunity to showcase the inequity of the Protocol, but I would not have expected HM Treasury to endorse that position.”

Sir John, MP for Wokingham and a prominent Brexiteer who is a member of the European Research Group (ERG), said: “The Government should get on with removing VAT from green products to encourage better insulation and lower bills, and take VAT off fuel during a period of high prices.

“It should do the same for Northern Ireland and if necessary pass legislation to ensure its legality.

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“No-one said the idea of the Protocol was to allow the EU to control UK tax policy.”

Fuel bills in the UK are currently subject to a VAT levy of a five percent.

Mr Johnson pointedly refused to commit to cutting this to zero when challenged to do so by Labour leader Angela Rayner on January 5.

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Days earlier, a group of 20 MPs including Craig Mackinlay, chairman of the Net Zero Scrutiny Group, ERG deputy chairman David Jones and Esther McVey signed an open letter to The Telegraph calling for the Government to act.

In it, they said: “We are appealing to Boris Johnson and Rishi Sunak to use the levers we have to mitigate some of these price rises.

“Two are available: first, the removal of VAT on domestic energy – a five per cent reduction, although small, would be a step in the right direction; and, secondly, the removal of the environmental levies on domestic energy, which in the case of electricity amount to 23 per cent of the bill.”

Earlier this month Chancellor Rishi Sunak sought to justify the decision by claiming a VAT cut would “disproportionately benefit the wealthy”. 

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