UK food bills may rise by 20 percent if new EC VAT rules agreed

A white paper produced by the European Commission in Brussels suggests radical changes to the way value added tax is applied to purchases which, if agreed, could see the cost of food shopping increase by up to 20 percent.

In December 2011, the European Commission (EC) released a consultation document in the form of a white paper suggesting a new system for value added tax (VAT – technically a sales tax) across European Union member states. The press release accompanying the publication of that white paper suggests that : Broadening tax bases and limiting the use of reduced rates could generate new revenue for Member States without the need for rate increases. The standard VAT rate could even be reduced in some Member States, without any impact on revenue, if exemptions and reductions were removed. Currently in the UK unprocessed food stuffs such as raw meat, vegetables, flour, nuts (in their shells), pulses and some bakery products such as cake and certain breads, including McVitie’s Jaffa Cakes which were the subject of a landmark VAT ruling in 1991, are zero-rated. Processed foods such as ready-made meals, snack-type foods such as potato crisps and roasted peanuts, ice cream and hot take-away meals are subject to the standard rate of VAT which is currently 20 percent. But, all that could change if Brussels gets its way. Currently, only the Republic of Ireland, Malta and the UK offer a zero-rate on certain foodstuffs – all other member states charge at least some VAT – the next lowest being Italy at 3 percent and the highest is Denmark with a VAT rate of 25 percent on all foodstuffs. The UK’s food inflation rate is already one of the highest within the EU and families are finding budgets are being stretched more and more in these uncertain economic times. If this new directive to scrap the zero-rate VAT on raw foodstuffs is implemented within the UK, food poverty within the country is likely to increase in direct proportion.