§ Mr. Andrew MitchellTo ask the Chancellor of the Exchequer if he will make a statement on the outcome of the latest meeting of the European Community's Economic and Finance Council.
§ Mr. Norman LamontThe Economic and Finance Council of the European Community met in Luxembourg on 24 June. I represented the United Kingdom.
435WFollowing the meetings on 3 June and 10 June, the Council again discussed the presidency's proposals for the future of VAT and excise duties in the single market. Agreement was reached, subject to Parliament's views, on a set of Council conclusions. The main points are as follows.
On VAT, all member states declared that they will apply a standard VAT rate of 15 per cent. or more from 1 January 1993. The other member states said that this political declaration should be translated into a directive. I made it clear that the United Kingdom does not believe that a directive is necessary. Statements were made in the minutes of the Council, reflecting these points of view. I also reiterated that the Government have no present intention of making any change to the current United Kingdom rate of 17.5 per cent.
Agreement was also reached on the key aspects of the VAT regime which will enable fiscal frontiers to be abolished after 1992.
There was acceptance in principle of a move at the end of 1996 to the origin system, under which the VAT rate applied to goods and services is that of the country in which they are produced, rather than where they are sold; but this would require a unanimous decision by the Council.
The agreement provides for the retention of all United Kingdom zero rates during the period before any move to the origin system, without prejudice to what happens thereafter.
It was also agreed that member states should have the option of applying one or two reduced rates, not lower than 5 per cent. The United Kindom Government have no present intention of introducing reduced rates.
On excises, agreement was reached on specific minimum rates for petrol, derv, heavy fuel oil, beer and cigarettes. It was agreed that these would be reflected in a directive in due course. The rates agreed are shown in the table.
Excise Duties: Minimum rates in ECUS Minimum rate agreed (ecus) Leaded petrol(1,000 litres) 337 Unleaded petrol (1,000 litres) 287 Diesel (1,000 litres) 245 Heavy fuel oil (1,000 kg) 13 Cigarettes (specific plus ad valorem duties, but excluding VAT) 57 per cent. of retail price (including tax) of cigarettes in the most popular price category1 Beer (hl of end product) 21.87 1 Specific duty element to be between 5 and 55 per cent. of total duty. 2 Per degree of alcohol. None of these requires any change in United Kingdom rates of excise duty.
A provisional agreement was reached on a zero rate for wine, heating kerosene and heating gas oil, pending a further report from the Commission on whether a satisfactory control system could be operated in the absence of a positive rate for these products.
Agreement was also reached that rules will be devised to distinguish between commercial and private alcohol and tobacco transactions, which will include minimum indicative levels above which the transactions will be taken 436W to mean, in the absence of evidence to the contrary, that they are of a commercial nature. A directive to cover these will be brought forward to accompany the directive on minimum rates of excise duties.
There was no agreement on a minimum rate for spirits. With a nil rate proposed for wine, the proposed rate for spirits would have worsened the current discrimination against, for example, Scotch whisky exports. I argued strongly that this was not acceptable, and secured agreement that the Commission's report should be extended to cover possible distortions in the drinks market. The minimum rate for spirits was therefore left to be decided later on the basis of that report.
I believe that this is a very good agreement for both the United Kingdom and the Community. For the United Kingdom it fully safeguards our zero rates; it will not require us to change any of our tax rates; it will not prevent future Governments and Parliaments from taking a different view about VAT if they want to; and it shows quite clearly that our Community partners have recognised our concerns. For the Community it provides Governments and businesses with the assurances needed to plan for the abolition of all fiscal frontiers from 1 January 1993.
Full details of the Council conclusions will be deposited in the Library of the House as soon as they are received.