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.
