UK Politics

MPs reject Labour call to reverse fuel VAT increase

Petrol dripping into a motorcycle's tank
Image caption Labour says the UK can gain European Union permission for a VAT cut on fuel

MPs have rejected a Labour bid to get the government to reverse the VAT rise on petrol.

Shadow chancellor Ed Balls said Britain could apply to the EU for a specific cut on fuel VAT - but the government says it would be illegal under EU law.

Ministers have hinted they will instead scrap a planned rise in fuel duty of 1p a litre above inflation in next week's Budget.

MPs rejected the Labour motion by 301 votes to 236 - a majority of 65.

With petrol costing more than £1.30 a litre, many motorists have complained that they are being priced off the road.

Mr Balls said: "At a time when world oil prices are going up, the Tory VAT rise is making things worse.

"It is putting an extra £1.35 on the cost of filling up a 50-litre tank and adding to the growing cost of living for families on low and middle incomes. George Osborne needs to stop dithering and take immediate action to help hard-pressed motorists."

'Unfunded'

Shadow Treasury minister Angela Eagle wrote to Lib Dem MPs, asking for their support.

During the debate she told MPs: "People already financially stretched by this government's slash-and-burn approach now find themselves having to cope with a sudden, sharp increase in the price of essentials like food, energy and fuel."

"The cost of fuel has risen seven pence a litre since the beginning of the year," said Ms Eagle.

"People are getting increasingly desperate for some relief from this Conservative government."

But Economic Secretary to the Treasury Justine Greening told MPs that shadow chancellor Ed Balls was "quite wrong to say that we can reverse the VAT rise on fuel because doing so would be illegal" under the EU VAT directive.

Mr Balls said Italy, France and Poland had reduced rates of VAT on various goods and services and argued that Britain could apply for a derogation now.

But Ms Greening said the last EU VAT negotiations took six years and the previous Labour government had not applied for any special rate for fuel.

The VAT cut proposal was "completely unrealistic, it is unworkable and it is disingenuous to suggest it". It was also "unaffordable given the economic mess that we inherited", she said.

The European Union prohibits member states from having more than three VAT rates. The UK already has 0%, 5% and 20% rates, meaning that bringing in a separate 17.5% rate for fuel would break the rules.

However, Mr Balls argues that it is possible to gain permission from the EU for a specific cut on fuel VAT.

At Prime Minister's Questions two weeks ago, David Cameron said: "I know how tough it is for motorists, particularly for small businesses and families, when they are filling up at the pumps and it's over £1.30 a litre.

"We will look at the fact that extra revenue comes to the Treasury when there's a higher oil price and see if we can share some of that benefit with the motorist."

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