Under the Chancellor's chairmanship, EC finance ministers agreed in Brussels last night to make it illegal for any Community government to cut its standard- rate VAT below 15 per cent.
Afterwards, Mr Lamont said: 'We've accepted the principle that the internal market needs a legally binding minimum rate.'
In conceding legal restraints from Brussels on the Government's freedom to set the rate of VAT, the Chancellor was formally reversing more than a year of British opposition to any legal limits from Brussels. But he insisted that his concern was for 'the practical flexibility of our fiscal policy'.
Yesterday's deal sets 15 per cent as the minimum for four years, and then gives ministers the right to reconsider the question in 1995. If they cannot agree, Mr Lamont said, there will be no legally binding minimum after that.
The agreement has no effect on VAT in Britain today, because the current 17 1/2 per cent standard rate is comfortably above the agreed minimum. Politically sensitive zero rates on food, children's clothes and other items will remain in place.
While thanking Britain's EC partners fulsomely for allowing the four-year review, Mr Lamont defended his concession of principle by saying that he was giving less ground on tax policy than had already been conceded by Nigel Lawson and Margaret Thatcher.
'We've come a very long way from the original proposal, which was for harmonising taxes. Now what we've got is only a floor,' he added.
Yesterday's British concession forms part of a much wider debate on what will happen to indirect taxes in the EC after 31 December, when the borders between the Community's 12 states are due to fall and consumers are to be allowed for the first time to buy goods anywhere in the EC and bring them home without paying duty.
Although experts see no economic need for EC-wide tax rates, some governments fear that unless the present wide gaps in VAT and excise taxes are narrowed, their consumers might go shopping elsewhere in the EC where taxes are lower.
The ministers agreed yesterday to set a minimum tax of about pounds 2.92 a bottle on spirits.
Attempts to bring closer together the different taxes on gold and sherry were left to another day; special low rates on cut flowers in some EC countries (but not Britain) will be allowed to continue until 1995.Reuse content