Scottish independence: Warning of VAT shock

AN INDEPENDENT Scotland would be “forced” by Europe to apply VAT on a whole range of products which are currently exempt from the charge, the Tories have claimed.

Scottish Conservative leader Ruth Davidson. Picture: Ian Rutherford
Scottish Conservative leader Ruth Davidson. Picture: Ian Rutherford

Conservatives said that would leave an independent Scotland facing a “massive tax bombshell” which would impact on both businesses and families.

Scottish Tory leader Ruth Davidson has now challenged Alex Salmond to “tell us fairly and squarely” what VAT rates would be charged on those items which currently have a zero VAT rate.

Her call came after a letter from Donato Raponi, the head of the VAT unit at the European Commission, said that member states of the European Union “must apply” EU rules on VAT.

A Scottish Government spokesman described it as “preposterous scaremongering” and claimed that an independent Scotland would negotiate continued membership of the EU from within the organisation.

The Tories said the UK could apply zero VAT rates on 54 areas because of a long-standing agreement with Europe which means shoppers here do not pay the charge on items including newspapers, books, some foods, equipment for the disabled and children’s clothes.

But the Tories said these would all be more expensive if Scotland was independent, as VAT could be levied on them.

In addition, the party claims parts of the construction sector, such as shipbuilding and aircraft repair, would also lose the right to 0 per cent VAT.

In his letter, Raponi stated that under current EU VAT rules, member states “are obliged to apply a standard rate of at least 15 per cent” for the charge and may also fix “one or two reduced rates” of no lower than 5 per cent.

He added that the issue of VAT rates could be considered when countries were negotiating membership of the EU.

Raponi said: “New member states usually negotiate and obtain some specific derogations, but limited in scope and in time. Once the accession treaty is agreed, along with any VAT derogations, it is no longer possible for a member state to introduce special VAT rates.”

He stressed: “The member state must apply the EU rules.”

Davidson said this showed that “yet another potential cost of independence has been exposed”.

“We know that within the UK families don’t have to pay VAT on vital items such as books or children’s clothes,” she said.

“The European Commission has now confirmed that, as a new member, an independent Scotland would be forced to give up those hard-won tax breaks which help ordinary families every year.

“That means a minimum 5 per cent increase on thousands of goods. No ifs, no buts – those are the rules for any new member.”

She continued: “It’s not just Scottish families that would be affected, but Scottish business too. Thousands of people in Scotland are employed across the construction sector in areas like shipbuilding and aircraft repair – areas which benefit enormously from VAT exemption and would be hit hard by such tax breaks being taken away under independence.”

A spokesman for Finance Secretary John Swinney said: “It is the Tories who have zero credibility with this preposterous scaremongering.

“An independent Scotland will not be an accession country and will negotiate the specific terms of our continued EU membership from within, based on the principles of continuity of effect and no detriment in terms of the EU treaty obligations and rights which already apply to Scotland, including on VAT.

“In any case, this is the height of hypocrisy from the Tories, as they have whacked up VAT and hit families hard with huge cuts to household incomes, with Tory right-wingers even wanting to slap VAT on food and children’s clothes.”