Potential halt to soaring fuel prices

The Shadow Chancellor faces a House of Commons vote to reduce VAT on fuel

Potential halt to soaring fuel prices

Potential halt to soaring fuel prices

MPs are urging the chancellor George Osbourne to help the struggling UK economy by reducing VAT on fuel from 20%, back down to the pre-January 2011 level of 17.5%.

This has been met with opposition as EU law stipulates a member state may only levy two different VAT rates at one time. The options for the UK government would therefore be the headline 20% rate, or the reduced 5% rate, currently applied to domestic heating fuels. Simply cutting the fuel rate down to 17.5%, or derogation, would require new legislation from the European Union allowing a third rate of fuel VAT.

In 1995 Labour's Ken Clarke succesfully applied for a third rate on domestic fuel, but the EU does not often agree to such a request, and only three instances exist today.

With the coallition government's first scheduled budget looming, Wednesday 23rd March 2011, the pressure is on to stimulate the economy without leaving a gaping hole in the nations balance sheet.

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