Last month, Prime Minister Boris Johnson stepped back on a promise to cut VAT from energy bills in line with a pledge he made during the Brexit referendum campaign in 2016. Once goods or services have been subject to VAT, they cannot be exempted, according to European Union rules, which also state the rate cannot be reduced without the unanimous agreement of the EU27. But the situation becomes complicated for the UK because Northern Ireland is still subject to EU laws when it comes to VAT in accordance with Annex 2 of the Protocol.
Victoria Hewson, Head of Regulatory Affairs at the Institute of Economic Affairs (IEA) think tank, explained: “The tail is wagging the dog.
“Even if the Government wanted to, it would not be permitted to scrap VAT on energy in Northern Ireland because the EU rules that Northern Ireland 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.”
But Mr Johnson is once again feeling Brexit fury from several Express.co.uk readers over his huge U-turn on scrapping VAT from fuel.
Reacting to our initial story, Express reader Hotdog 008 raged: “Well done. The truth is out.
“The Government can’t reduce VAT on anything because it would show Northern Ireland to be firmly in the EU orbit.
“The Prime Minister needs to sort this ASAP. This is not Brexit.”
“Justme.74” called for action from Jacob Rees-Mogg, who earlier this month was appointed to a new role to explore the benefits of leaving the EU for the UK.
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“Give him full authority including the ability to invoke A16 and authority over fishing, to get the best deal for the UK.”
“Mastermariner” simply commented: “All the more reason to trigger Article 16.”
Conservative Party MP and prominent Brexiteer Sir John Redwood believes the Government should nevertheless get on the front foot by passing domestic legislation enabling it to make the necessary changes to VAT – regardless of the EU.
He 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.
“No-one said the idea of the Protocol was to allow the EU to control UK tax policy.”
UK fuel bills are currently subject to a VAT levy of a five percent.
Last month, Mr Johnson refused to commit to cutting this to zero when challenged to do so by Labour Party deputy leader Angela Rayner.
Chancellor Rishi Sunak has tried to justify the Government’s stance on the matter, claiming a VAT cut would “disproportionately benefit the wealthy”.