EU budget plan may see 1% VAT hike

New money-raising plans for the European Union could mean an extra 1% on VAT in Britain.







At the moment 0.3% of VAT on every pound spent goes directly towards the EU budget.



But under European Commission proposals to increase its revenue-raising powers, that could grow to 1.3% - a sum almost certain to be passed on to consumers if the plans are approved.



The European Commission's seven-year budget proposals from 2014 have already caused an outcry, estimated by the Treasury to amount to a "completely unrealistic" extra 11% on the British net contribution.



That means finding another £1.4 billion a year - the first two years of which would have to come from the belt-tightening national spending review programme under which Chancellor George Osborne has already allocated drastically-reduced funds.



But the EU plan also includes controversial moves to step up Brussels' direct revenue-raising powers, through a new EU levy on European banks - a "Financial Transactions Tax" - and by increasing the EU "take" from national VAT income.



Currently the EU gets 0.3% of the nation's VAT receipts.



Under the Commission plan, that would go up to 1.3% - money which could either be absorbed by the Treasury or passed on to taxpayers by raising standard-rate VAT from the current 20% to 21%.



As the EU budget proposals were being finalised at Commission headquarters last month, Eurocrats suggested that the extra 1% VAT "take" for Brussels should be itemised separately, to make the public aware of their direct contribution to running the EU.



According to insiders, Britain's EU Commissioner, Baroness Catherine Ashton, raised objections and the idea was dropped from the budget proposal.



But much else is still to be battled over in what is being seen as an inflation-busting spending round at a time of major national cutbacks to fight the economic downturn.



Prime Minister David Cameron warned Commission President Jose Manuel Barroso at talks in Downing Street days before the proposals were unveiled that the public would not understand anything above an EU spending increase in line with inflation - a real-terms freeze.



And after publication, a Downing Street spokesman condemned the plans in a statement reminding Brussels of a letter published last December by Britain, France and Germany, urging that the EU creed "should not be to spend more, but to spend better".









The other battleground in the coming months of budget bartering between the Commission, the European Parliament and EU government ministers is the British rebate, which has knocked billions of pounds off the UK's EU bills for more than 25 years.

It currently saves the country more than £3 billion a year and, as negotiated by Mrs Thatcher in 1984, is a permanent part of the EU budget system.



The Commission says the rebate is no longer necessary, but UK officials say the justification remains - UK payments to the EU kitty are disproportionately high, with the Treasury paying twice as much to the EU budget as France, and one and a half times as much as Germany.



Now the Commission wants to offer the UK a lump sum to end the current agreement and make any future rebate re-negotiable at each budget review.



The UK would temporarily get even more back than it does now - but face an uphill struggle to get anything back at all in future EU spending review rounds.



As the UK and other member states brace for months of budget wrangling with the Commission and MEPs before final figures are agreed, the Commission vigorously denied that it is planning a massive increase, arguing that the calculations of many national Treasuries use different criteria as the basis for comparing current and future spending.



Commission officials say the projected annual EU budget of £126.5 billion amounts to about 1% of the combined GDP of the 27 member states- the same GDP share as the current EU budget.



But national number-crunchers say that means a significant rise, as GDP has been growing in the member states.



They insist that, in cash terms - depending on the base year and whether some EU policies count as "off balance-sheet" as the Commission insists - the budget proposal represents an increase of about 11%, way above inflation.







A Commission spokesman said: "Our proposal is solid, is responsible and is designed to make a difference for Europeans in the years to come after the crisis."

He said the budget plan for 2014-2020 "stabilises the purchasing power of the EU budget at the 2013 level".



However, UK officials say the reference year for EU leaders' demands for a freeze was the current 2010-2011 budget.



The Commission spokesman acknowledged: "We see that many are now reacting to it (the 2014-2020 budget plan), giving their views on and interpretations of the policy proposals and the figures.



"These views and interpretations are not always concurring, which is quite normal in what is the beginning of a negotiation on the basis of our proposal.



"We will now take this forward in the framework of the negotiations, and not in the press."













Conservative leader in the European Parliament Martin Callanan said a larger tax take from Britain to fund Brussels would hamper national economic recovery:



"This just goes to show how utterly out of touch with real people the Brussels bureaucrats have become.



"In these difficult times people just can't pay - won't pay - more taxes to fund more European empire-building."



He went on: "The whole budget proposal is an arrogant attempt to squeeze more cash out of hard-pressed taxpayers, but the plan for a specific Euro VAT, going directly to Brussels, is simply an insult.



"It would hurt businesses and their customers equally and put a dead hand on economic recovery."











UK Independence Party MEP and leader Nigel Farage said: "This is vintage Eurocrat behaviour. They are planning to whack up the cost of Britain's EU membership by fiddling with the VAT, but they don't want anybody to talk about it. Cathy Ashton has gone so far as to veto any attempts at transparency.



"The choice for the UK Treasury is pretty painful if this goes through. Either they have to take the hit themselves, hurting more public services across the country at a time of increasing austerity, or they will have to pass on the costs direct to the consumer, when household budgets are at record lows."



There was another option, he said: "They (the Government) could let us have the promised referendum and stop this carry-on once and for all."



John Walker, national chairman of the Federation of Small Businesses, said: "The economy is in a fragile state with consumer confidence, small business profits and employment intentions all at a low.



"Increasing VAT by another 1% would only further this downward trend, when we should be looking to stimulate small businesses and consumer spending.



"Small firms do not have the capacity to absorb VAT rises like big businesses, and so are put at a disadvantage.



"If we are to really grow the economy, the FSB urges the Commission to scrap this rise."







A Treasury spokesman said: "The Government believes the European Commission's proposals are unrealistic. We oppose any new tax to fund the EU and these proposals are unacceptable. Tax is and should remain a matter for sovereign governments."

Suggested Topics
PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
video
Life and Style
tech
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
film
Arts and Entertainment
Up my street: The residents of the elegant Moray Place in Edinburgh's Georgian New Town
tvBBC's The Secret History of Our Streets reveals a fascinating window into Britain's past
Extras
indybest
News
Albus Dumbledore, the headmaster of Hogwarts School of Witchcraft and Wizardry has been the teaching profession's favourite teacher
education
Sport
Luis Suarez looks towards the crowd during the 2-1 victory over England
sport
Life and Style
Cheesecake frozen yoghurt by Constance and Mathilde Lorenzi
food + drinkThink outside the cool box for this summer’s frozen treats
News
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Sport
Sir Bradley Wiggins removes his silver medal after the podium ceremony for the men’s 4,000m team pursuit in Glasgow yesterday
Commonwealth games Disappointment for Sir Bradley in team pursuit final as England are forced to settle for silver
Sport
Alistair Brownlee (right) celebrates with his gold medal after winning the men’s triathlon alongside brother Jonny (left), who got silver
England's Jodie Stimpson won the women’s triathlon in the morning
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

SQL Report Analyst (SSRS, CA, SQL 2012)

£30000 - £38500 Per Annum + 25 days holiday, pension, subsidised restaurant: C...

Application Support Analyst (SQL, Incident Management, SLAs)

£34000 - £37000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

Embedded Software / Firmware Engineer

£40000 - £45000 per annum + Pension, Holiday, Flexi-time: Progressive Recruitm...

Developer - WinForms, C#

£280 - £320 per day: Progressive Recruitment: C#, WinForms, Desktop Developmen...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform