Tax row over children's clothes

President Chirac has campaigned on reduced Vat for restaurants

The UK should end the zero rate of VAT on children's clothes and shoes, while French restaurants should be permitted to charge reduced tax rates, the European Commission has said.

The measures are part of a series of proposals aimed at simplifying the range of VAT rates across European Union member states.

The proposal is likely to anger the UK government, as maintaining the zero rate on children's clothes and shoes was a manifesto commitment before the 2001 election.

The change could therefore meet hostile opposition from the UK government, which can veto the proposal.

VAT row

Frits Bolkestein, the commissioner in charge of the single market, wants to bring VAT rates closer together and to trim the number of areas where "zero rating" applies.

The benefits of a zero rating...accrues not to the clients, not to the public, not to the children, it accrues to either the producer or the retailer Frits Bolkestein

"We need to ensure a more level playing field," said Mr Bolkestein.

"Also, a reduction in VAT rates is never passed on in full in consumer prices. Very often it is negligible and temporary."

Ireland does not charge VAT on children's clothes, for example, and Luxembourg charges "super reduced" rates, so both countries would also be affected by the proposal.

UK block ahead?

If agreed the proposals would amend a 1997 VAT directive.

France, for example, will be able to apply a reduced VAT rate to restaurants as promised by President Jacques Chirac in his electoral campaign.

French restaurants could cut the VAT they must charge diners from the current 19.6% down to 5.5% - the rate fast-food restaurants charge.

But the European Commission's push for a standard VAT rate of at least 15% on children's clothes and shoes has raised eyebrows.

And tax measures require unanimous approval, so has little chance of getting through - it would be unusual if the UK did not block it.

"I know...this is likely to be criticised. I am sure it will be presented by some as a proposal to tax motherhood and apple pie," said Mr Bolkestein.

But he said clothes prices in Britain were higher than in the rest of Europe.

"The benefits of a zero rating...accrues not to the clients, not to the public, not to the children, it accrues to either the producer or the retailer," he added.