UK and France push for VAT cut on green goods

British Prime Minister Gordon Brown and French President Nicolas Sarkozy have made a joint call for reduced value-added tax rates for products which are less environmentally damaging than their alternatives.

Under the bilateral proposals, this would mean incentives on a whole range of goods, from energy efficient light bulbs and fridges to fuel efficient cars and insulation material.

The two premiers outlined an EU-wide VAT rate of 5% on products which met certain environmental criteria, well below the UK rate of 17.5% and the French rate of 19.6%.

Both states have said they will ask their finance ministers to raise the issue with the European Commission, saying that if you wish to see a reduction in pollution, it makes sense to offer tax breaks for less polluting products.

Despite the logic of such a position, it is far from certain that the proposals will see the light of day in Brussels, as changes to tax laws must be voted through unanimously by all member states.

States not currently geared up for the production of goods with high environmental standards might be reluctant to offer a competitive advantage to those which are with no sign of gain for themselves.

There are also concerns that such a move would distort international trade, perhaps threatening global agreements, particularly in relation to the import of biofuels from developing countries.

There is a silver lining, however, as the EU has recently published consultation papers on a tax review, which state it wants to see a greater harmonisation of VAT rates across the bloc and also suggest that the commission is broadly in favour of concessions for environmentally friendly products.

David Gibbs

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