7 July 2014

Poland has announced that it is the latest country to consider abolishing the reduced rate and combining it with a new, lower, standard rate. This could see the current standard rate of 23% reducing to 17%, although a slightly higher rate may be required initially in view of austerity requirements.
The European Commission has suggested to all member states that a combined rate would be beneficial, as reduced rates do distort competition. However, member states which have considered this have usually rejected it and Germany is the latest tax authority to do so. The Czech Republic has also considered the move but rejected it. The reasons may well be political, as the doubling of the VAT rate on food, for example, might well cause uproar.
The UK for example is strongly opposed to the extension of VAT to food and childrens’ clothing. Nevertheless, a European Commission recommendation as recently as 2 June 2014 has suggested that the UK should “consider” broadening the tax base – including removing the VAT zero rates. It is highly unlikely that the UK would impose 20%, or even a reduced standard rate of 15%, but 5% is an option and might be a move considered by the Government to further alleviate the budget deficit.