The government is lobbying Brussels for the right to slash VAT on products that are environmentally friendly, The Grocer has learnt.
Chancellor of the Exchequer Alistair Darling and France's finance minister Christine Legarde have sent a joint letter to the European Commission proposing the establishment of a new category for green products rateable at 5%.
The duo have been forced to go through Brussels because under EU rules VAT rates can only be set for products for which an official category exists.
As there is no such category for green products, it would be necessary to establish one, but this can only be done with the agreement of all 27 member states - often a long and difficult process.
This means getting the idea accepted by the EU Council of Ministers. The proposal could be on the agenda for the next meeting of the European Council of Finance Ministers.
Senior figures within the European Commission said the Darling-Legarde letter was "very vague", with no precise indication of what was meant by environmentally friendly products.
However, a Treasury source told us this week that the government had a wide range of products in mind, from fmcgs to loft insulation and double glazing.
Food is already exempt from VAT, but the suggestion raises the prospect that even confectionery and beverages - which are subject to the tax - could earn relief if they are produced and packaged in an environmentally friendly way.
In addition, eco-friendly toileteries and household goods, such as Ecover, could benefit from relief, while bags for life may also become more affordable.
Ministers believe the cut in VAT would encourage retailers to sell more eco-friendly products and consumers to buy them.
No comments yet