Brown blocks VAT on kids' clothes

CHANCELLOR Gordon Brown has forced the European Commission to scrap its plans to make parents pay VAT on children's clothes and shoes.

Brown, along with Ireland and Luxembourg, persuaded fellow European finance ministers that further taxes on such controversial items would be hugely unpopular with families and voters.

The Chancellor threatened to use Britain's veto if EU Taxation Commissioner Frits Bolkestein pressed ahead with the proposals, which are part of plans to impose uniform VAT rates across the EU.

Brown's victory means EU officials will now have to take back the proposal to Brussels and redraft it. But Government insiders believe the move will now be scrapped and that children's clothes and shoes will remain zero tax-rated.

Margaret Thatcher won a 'zero-rate' of VAT on children's clothes and shoes when the Commission first tried to pull together national indirect tax policies in the Eighties.

The new proposal to charge VAT on them at a rate of at least 15% was the brainchild of Bolkestein.

The Dutchman is also hoping, at the same time, to prevent VAT being charged on the sale of cut flowers, which is one of his home country's biggest money-spinners. Under the harmonisation plans, France would also see VAT rates on restaurant bills slashed from 19.6% to 5.5% - meeting an election pledge from the French president, Jacques Chirac.

Italy, now holding the EU presidency, would keep a zero-rating on broadcasting services, dear to the heart of media mogul and prime minister Silvio Berlusconi. However, Tony Blair made a manifesto pledge at the last General Election that children's clothes and shoes would remain tax-free.

Concerns have also been raised that if the new tax plan were accepted, it would pave the way for VAT to be imposed on food, newspapers and books, which are also zero-rated in the UK at the moment.

Brown said last night: 'We have said right from the beginning that Britain will not accept taxation imposed on children's shoes and clothes.

'That is in the national interest and is now also accepted by many other members of the European Community and I believe over the next few months we will see the proposal dropped. We will not allow taxation to be imposed on children's clothes or shoes. We've made that clear today.'

Earlier, Brown called for a flexible interpretation of the EU's stability and growth package.

The Chancellor, representing Britain at the EU Ecofin summit meeting in the Italian lakeside resort of Stresa, was speaking after France backed down from its earlier hardline stance and agreed to reduce its deficit below the euro-zone ceiling of three% of Gross Domestic Product by 2005.

Had France refused to reduce its deficit, it risked a serious split with its single-currency partners.

Brown said: 'There has got to be discipline so that you have fiscal prudence and stability in the economy.

'Equally, at this time, when the deficit in Japan is 8% and America's is 4-5%, and when countries are going to recover, of course there needs to be some flexibility so that one can see economic growth.'